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)