Colinear variable SOE model

Hi everyone, I’ve tried to include government in a small-open economy DSGE model, but it seems that Blanchard and Khan conditions are not satisfied and there is a colinear variable (s=nominal exchange rate):

MODEL_DIAGNOSTICS: there is 1 colinear relationships between the variables and the equations
Colinear variables:
Colinear equations
Columns 1 through 22

 1     2     3     5     6     7     8     9    10    11    12    13    14    15    17    18    19    20    22    23    24    25

Columns 23 through 25

26    27    28

I would like to know how can I proceed in finding where is the mistake in the model, as it can be related to parametrization or model definition. bayesianVeraoRank.mod (5.3 KB)

It’s recommended to simplify the model for debugging. In your case, it may either be a timing issue or a parameter problem, most likely related to fiscal rules. Have you tried what happens with lump sum taxes?
Note that a unit root in the nominal exchange rate may not be a problem.

Thank you Professor Pfeifer! I have not tried to use global taxes, as my main objective is to model fiscal limits and for that it is important to have distorting taxes. But I will try to do this to identify the problem.