Collinearity problem nkopen economy dsge model

[jpfeifer]

As mentioned at dynare.org/DynareWiki/KnownBugs, there was a bug in 4.4.3 that

When falsely specifying the model(linear) for nonlinear models, incorrect steady states were accepted instead of aborting

Thus, you cannot trust version other than the unstable version with your mod-file. The

(linear)

option of the model block does not indicate to Dynare that linearization is to be done, but that you (the user) provides an already linear model, which is clearly not the case. Use

order=1

for that. The issue when doing that is to correctly link the relation ship between the variables. You cannot have i represent the level of interest rates in one equation and the percentage deviation from interest its steady state in another. See [Linear form)