Error: The generalized Schur (QZ) decomposition failed

[jpfeifer]

As indicated at

Indeterminacy

My guess is that the problem comes from the last equation rstar-rstar(+1)=RHORSTAR*(rstar(-1)-pistar)+vrstar; It is different from the Appendix. Moreover, there is no way to disentangle which part of the exogenous foreign real interest rate comes from rstar and which from pistar. They are only jointly determined. Therefore. you might need to define rstar(-1)-pistar as one variable.

in your model the foreign real interest always appears as

r_s - pi_s(+1)

There is no way to disentangle the two components. You could just define r_s_real instead and formulate

r_s - pi_s(+1)= rho_r_s*(r_s(-1) - pi_s) + v_r_s;                  

as

r_s_real= rho_r_s*(r_s_real(-1)) + v_r_s;                  

That will solve the collinearity. But because you will replace two variables by one without dropping another, it shows that you are still including one redundant equation. Alternatively, there is a larger problem with your setup.