Colinear equations and variables

Stochastic simulations
1

Hi, a Beginner here;
I am trying to run my model, but I face following errors.
Based on errors 2 variables (m & p) are colinear in an equation that they do not exist in (technology shocks equation).
I would be thankful if you guide me.

Error using print_info (line 32)
Blanchard & Kahn conditions are not satisfied: indeterminacy.
Error in stoch_simul (line 107)
print_info(info, options_.noprint, options_);
Error in aliye6.driver (line 380)
[info, oo_, options_, M_] = stoch_simul(M_, options_, oo_, var_list_);
Error in dynare (line 293)
aliye.mod (2.3 KB)

evalin(‘base’,[fname ‘.driver’]) ;

2

There are two overlapping, unrelated problems that are flagged by model_diagnostics. Due to numerical reasons, the program cannot disentangle them. Your model has two unit roots. Therefore, two separate relations should be displayed.

  1. The technology equation contains a unit root and therefore causes a singularity. It comes from aa2=1. T
  2. The second issue is M-P always appearing together in all equations, implying that M and P cannot be separately identified within the model, only their ratio.

But these two things are not the big issue. The problem is your model not conforming to Dynare’s timing convention. For example,

A(+1)=aa2*A+EEPSILON(+1);

needs to be shifted back by one period and M and K most probably are predetermined.

3

Thank you so much, but when I set aa2 more than 1 or even lessen, beside technology shock, dynare announces all my equations colinear.
how much should I set aa2, when I can choose it freely?

4

should I shift m and k too?

5

The aa2 is not a problem. But usually, it is smaller than 1. Regarding the predetermined variables: you may try
predetermined_variables K M;

6

thank you so much, I think I could run my model.

7

aliye.mod (2.3 KB)
I could run it but I have nan between answers, what should I do about it?

8

I get an indeterminacy problem with the file you posted.

9

so you cannot run it? it runs for me
what does indeterminacy problem represents?
pls try this too.
aliye.mod (2.3 KB)

10

I am getting

There are 6 eigenvalue(s) larger than 1 in modulus
for 7 forward-looking variable(s)

The rank condition ISN’T verified!

Error using print_info (line 32)
Blanchard & Kahn conditions are not satisfied: indeterminacy.

Error in stoch_simul (line 120)
print_info(info, options_.noprint, options_);

11

thank you a lot,
any advice for solving these problems?

12

The usual advice: carefully checking the timing of all equations.

13

Thank you.