Hi everyone,

I’ve extended a closed economy model with government to a two-country one, similar to Gali and Monacelli (2005). But, I ended up having with colinearity problems. As the model has worked when economy was closed, I don’t know if it is just a parametrization or model definition problem.

ModelOpenBi.mod (13.6 KB)

there is 8 colinear relationships between the variables and the equations

Relation 1

Colinear variables:

C

W_real

N

MC

Y

I

Pi

V

Phi_v

M

Pi_x_D

x_1_D

x_2_D

Pi_D

Pi_P_D

d_D

Pi_F

Pi_x_F

x_1_F

x_2_F

Pi_P_F

d_F

Q

dS

TOT

PSI_f

Pi_x

Y_x

I_x

B

tau

G

A

Gamma

Relation 2

Colinear variables:

W_real

N

MC

Y

I

Pi

V

Phi_v

M

Pi_x_D

x_1_D

x_2_D

Pi_D

Pi_P_D

d_D

Pi_F

Pi_x_F

x_1_F

x_2_F

Pi_P_F

d_F

Q

dS

TOT

PSI_f

Pi_x

Y_x

I_x

B

tau

G

A

Gamma

Relation 3

Colinear variables:

W_real

N

MC

Y

I

Pi

V

Phi_v

M

Pi_x_D

x_1_D

x_2_D

Pi_D

Pi_P_D

d_D

Pi_F

Pi_x_F

x_1_F

x_2_F

Pi_P_F

d_F

Q

dS

TOT

PSI_f

Pi_x

Y_x

I_x

B

tau

G

A

Gamma

Relation 4

Colinear variables:

W_real

N

MC

Y

I

Pi

V

Phi_v

M

Pi_x_D

x_1_D

x_2_D

Pi_D

Pi_P_D

d_D

Pi_F

Pi_x_F

x_1_F

x_2_F

Pi_P_F

d_F

Q

dS

TOT

PSI_f

Pi_x

Y_x

I_x

B

tau

G

A

Gamma

Relation 5

Colinear variables:

W_real

N

MC

Y

I

Pi

V

Phi_v

M

Pi_x_D

x_1_D

x_2_D

Pi_D

Pi_P_D

d_D

Pi_F

Pi_x_F

x_1_F

x_2_F

Pi_P_F

d_F

Q

dS

TOT

PSI_f

Pi_x

Y_x

I_x

B

tau

G

A

Gamma

Relation 6

Colinear variables:

W_real

N

MC

Y

I

Pi

V

Phi_v

M

Pi_x_D

x_1_D

x_2_D

Pi_D

Pi_P_D

d_D

Pi_F

Pi_x_F

x_1_F

x_2_F

Pi_P_F

d_F

Q

dS

TOT

PSI_f

Pi_x

Y_x

I_x

B

tau

G

A

Gamma

Relation 7

Colinear variables:

W_real

N

MC

Y

I

Pi

V

Phi_v

M

Pi_x_D

x_1_D

x_2_D

Pi_D

Pi_P_D

d_D

Pi_F

Pi_x_F

x_1_F

x_2_F

Pi_P_F

d_F

Q

dS

TOT

PSI_f

Pi_x

Y_x

I_x

B

tau

G

A

Gamma

Relation 8

Colinear variables:

W_real

N

MC

Y

I

Pi

V

Phi_v

M

Pi_x_D

x_1_D

x_2_D

Pi_D

Pi_P_D

d_D

Pi_F

Pi_x_F

x_1_F

x_2_F

Pi_P_F

d_F

Q

dS

TOT

PSI_f

Pi_x

Y_x

I_x

B

tau

G

A

MODEL_DIAGNOSTICS: The presence of a singularity problem typically indicates that there is one

MODEL_DIAGNOSTICS: redundant equation entered in the model block, while another non-redundant equation

MODEL_DIAGNOSTICS: is missing. The problem often derives from Walras Law.