# Collinearity in Small open economy

Hi dear dynare’s users. I’m doing my master thesis on a soe with two sectors but i’m not able to run the simulation because of some collinearity problem and the missing of one eigenvalue>1 respect of the number of jumpers (seen with diagnostic option). In order to find out where is the problem I’ve split my model in two different submodels. In the first case I’ve used the same equation, with two sector but in a closed economy setup, thus removing all foreign processes and exchange variables. In the second, I used only one sector (all the goods are tradables) but in a open economy setup. The result is that with the closed economy dynare run without collinearity but in the open one the error is the same of the original model. I post the mod file of the one sector open economy in the hope that someone can help me in finding the problem’s solution.

Please to note that I don’t think it is a parameters problem because I’ve used the same in closed economy with the expected result. Morover the parameters declared in the model are more than which are really used in the equations because I simply copied them from the original model.
Furthemore I’ve try to do various manipulation to remove the collinearity but they still resist. I wonder if there is some that i miss in the model specification

This is the error message:

model_diagnostic: the Jacobian of the static model is singular
there is 3 colinear relationships between the variables and the equations
Relation 1
Colinear variables:
c
w_p
h
pth_p
cth
e
yth
hth
cths
y
ptf_p
ctf
q
ps
Relation 2
Colinear variables:
c
w_p
h
pth_p
cth
e
yth
hth
cths
y
ptf_p
ctf
q
ps
Relation 3
Colinear variables:
c
w_p
h
pth_p
cth
e
yth
hth
cths
y
ptf_p
ctf
q
ps
Relation 1
Colinear equations
1 10 11 18 20 21 22
Relation 2
Colinear equations
1 10 11 18 20 21 22
Relation 3
Colinear equations
1 10 11 18 20 21 22

EIGENVALUES:
Modulus Real Imaginary

``````     1.4e-16         -1.4e-16                0
0.03343          0.03343                0
0.3              0.3                0
0.3              0.3                0
0.5              0.5                0
0.8              0.8                0
1                1                0
1                1                0
1                1                0
1.001            1.001                0
21.69            21.69                0
Inf              Inf                0
``````

There are 3 eigenvalue(s) larger than 1 in modulus
for 4 forward-looking variable(s)

The rank conditions ISN’T verified!

Error using print_info (line 43)
Blanchard Kahn conditions are not satisfied: indeterminacy
Error in stoch_simul (line 81)
print_info(info, options_.noprint);
Error in Open (line 269)
info = stoch_simul(var_list_);
Error in dynare (line 120)
evalin(‘base’,fname) ;

Open.mod (2.89 KB)

what are the state variables in your model?

The state variables are q,ptf_p, pitf , ps and all the AR processes (rs ys pis). I’ve noticed that equation 9 was written in wrong form. the correct version is