Help! simple two-country model: Matrix is singular to...

[logsu]

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!

[SébastienVillemot]

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,

[kyri82]

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

Kyriacos