2 types 2 goods model

General DSGE Modeling
1

Hello,

I successfully ran a model with 1 agent and 2 goods which is perfectly symmetric in the goods dimension. The IRFs look great and I think it’s good.

I go from there to a 2 agent, 2 goods economy which is perfectly symmetric in both the goods and the agents. This is just a minor extension of the previous model, I just add the following:

  1. one intra-temporal Euler equation
  2. one inter-temporal Euler equation
  3. one budget constraint
  4. 1 aggregation equation across the consumption of the two individuals

However, when I run it, it runs into a rank problem:

There are 4 eigenvalue(s) larger than 1 in modulus
for 5 forward-looking variable(s)

The rank condition ISN’T verified!

Note I am not using capital so I don’t think it has anything to do with timing. My only thought was the symmetry might be the problem but I deviate from the symmetric case and still get the error.

Any thoughts? For details on the model, see the attached file.

Thank you!

model1country.txt (1.2 KB)

2

From my limited experiences, it may due to the timing you set for capital, and/or bonds, e.g., K(-1) for production function Y=F(K(-1),N) and similar in budget constraints.

3

How did you close the model?