I am trying to get non-linearized 2-sector NK model to work in Dynare - While the steady state seems fine, I am getting a violation of the B+K conditions. I have no predetermined variables (capital) as labor is the only input to production. I think the Taylor rule is stabilizing.
When I run model_diagnostics(M_,options_,oo_), I find one colinear relationship for basically all of my price and wage variables for both the sectors in my model. I am wondering if this is a mistake-driven error or if I am missing conditions to properly identify the model.
Any help is much appreciated (annotated mod attached)
2sectormodel.mod (4.3 KB)