Colinear equations in NK stochastic vol model

Stochastic simulations
1

Hi,

I am running an NK model with stochastic volatility using Epstein-Zin preferences. An error that I keep getting from model_diagnostics, regardless of how timing is formulated, is colinearity in the variables and equations. There are 11 equations for 11 variables in this model, so it is not clear to me whether the source of the problem is the model or the parameters. Does anyone have some insight on this? The mod file is attached.

V
NK_vol.mod (7.1 KB)

2

Your model has a unit root. This explains the collinearity message. That per se is not necessarily a problem. But your model does not satisfy the Blanchard-Kahn conditions.