Collinearity in the model: Non-redundant equation is missing

I am trying to replicate the model presented in this paper with a couple of additional features, namely:

  • Decreasing returns to labour
  • Calvo firms being able to index their prices to past inflation

The steady state is calculated correctly. However, model_diagnostics reveals that there is collinearity present in the model, and one non-redundant equation is missing. However, I don’t understand which one that is. I include all the equations from the original article (by making appropriate modifications). What could be the source of the problem?

model.mod (7.0 KB)

Something like

p_g_c = exp(Pi_g)/exp(Pi_c) * p_g_c(-1);

looks strange. Are you sure you can uniquely pin down p_g_c?