2 Country New Keynesian Model Help

Hi all

I have build a basic two country NK model with local currency pricing and adjustment costs. However, the model does not run and I cannot figure out what is the issue. I am getting a collinearity problem between a bunch of equations and I don’t really understand what is causing it. I don’t think any of these equations should be collinear. I am wondering if I have a timing problem. I also have two unit root eigenvalues. I would appreciate any help.

Thank you
two_country_NKmodel.mod (4.46 KB)

The collinearity warning comes from the two unit roots in your model. You need to understand where they come from.