Colinear relationship two country model

[INTLMACRO]

Hey,
I am using Dynare version 4.4.3 with Matlab R2014b.
I am running a two country model and Dynare finds 1 collinear relationship which I believe it comes from one unit root. ( Since 1 eigenvalue equals 1)
I have changed price levels with inflation and price ratios and I still have the collinearity issue here.
I think it comes from the exchange rate, but I have it in first differences.
Any idea would help! thanks!

[jpfeifer]

Without knowing the model, this is hard to tell. But for some reasons the NFA position and the risk premia have a unit root. You need to try to find out why that is the case and whether this is a feature or a bug.

[INTLMACRO]

To make NFA stationary, I have added endogenous discount factor without internalization following S.Schmitt-Grohe and Uribe (JIE2003)

Code: Select all

(beta_fun1)=(1+(C1))^(-mudf);
(beta_fun2)=(1+(C2))^(-mudf);

Thats why I don't see where these unit root come from.
Do you get this diagnostic as well? and rank condition satisfied?

Code: Select all

model_diagnostic: the Jacobian of the static model is singular
there is 1 colinear relationships between the variables and the equations
Colinear variables:
Div1     
Div2     
NFA       
Z1       
Z2       
NX       
RER       
RP       
RPSTAR   
Colinear equations
    31    32    39    40    41    42
The presence of a singularity problem typically indicates that there is one
redundant equation entered in the model block, while another non-redundant equation
is missing. The problem often derives from Walras Law.

Thanks a lot,

[jpfeifer]

As I said, you are the model-builder and have to understand the economics behind what is going on. Maybe you should try to start with a simpler model and then only add additional features later.