Dynare forums

Dear experts,

In the attachment is a extremely simple two-country model with labor, to test the capital flows caused by technology difference. It is a social planner's problem, the two countries are identical in every aspect except for their different capital share values in the Cobb-Douglas production fucntion ( I tend to test CES functions later). The two country face a symmetric permanent technology shcok.

but Matlab warns:

Warning: Matrix is singular, close to singular or badly scaled.
Results may be inaccurate. RCOND = NaN.
> In sim1 at 84
In simul at 93
In ces1_0 at 180
In dynare at 132
Warning: Matrix is singular to working precision.
> In sim1 at 84
In simul at 93
In ces1_0 at 168
In dynare at 132
.....

Some other things:
1. The initial values I used here is what the program generates ( it can still solve the steady-state values before warning)
2. In the end it warns: maximum number of iterations is reached (modify options_.maxit_), I changed the options, but nothing changed..

I wonder why this thing happens? I really appreciate your help!

There is a singularity when solving the nonlinear problem. This means that there is no unique path leading from one equilibrium to the other.

I can't be more precise than that: you need to investigate in order to find what could cause this in your model.

Best,

Dont you need to include the law of motion of the exogenous variables, z1 and z2?

Kyriacos