A Question about parameter values that lead to rank condition problem

Dear Professor Pfeifer,

When I finished writing the code of model, I encountered a problem about parameter values that lead to rank condition problem. It’s about the monetary policy founction which I wrote as follow:

RU = rhoRUU * RU(-1) + (1-rhoRUU)(RUU + rhopiUU(piU-piUU) + rhoYUU*(YU-YU(-1))) + e_R;

when I set the value of ‘rhopiUU’ to ‘1.5’ or ‘2’, the rank condition isn’t verified. While when I set it to ‘0.9’, the model is simulated successfully.

My question is that:
Is this normal (because in some models, the value of ‘rhopiUU’ is always larger than ‘1’)?
Is it OK for ‘rhopiUU’ to be smaller than ‘1’?

(I have checked the timing condition for many times to make sure that the rank condition problem is not caused by the timing)

Any reply will be appreciated. Thank you very much.

This is very strange. Your model does not satisfy the Taylor principle. My guess is there is a timing issue that you can only fix by moving one unstable root to the determinacy region, i.e. by having the parameter smaller than 1