Dynare forums

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!

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.

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,

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.