Dear all,
I am trying to replicate in a simple way the model of S. Brissimis and I. Skotida (2008, JIMF): http://www.sciencedirect.com/science/article/pii/S0261560607001362
It consists in a simple 3-equation model: Phillips curve(5), AD curve and implicit instrument rule ((5),(6),(10)). For the multicountry version: the model consists in 5 equations: for each of the 2 countries('e','d') a Phillips and AD curve and a common instrument rule ((14)-(17),(23)).
While the version of the monetary union with aggregate data works fine, the multicountry version does not: It only incorporates 3 eigenvalues larger than 1 for 4 forward looking variables [x_e(+1), ppi_e(+1), x_d(+1), ppi_d(+1)].
Does anyone have an idea what could be the origin of the problem?
Many thanks in advance!