Gali Monacelli (2005) 2 country extension

Hi everyone,

My model is an extension of Gali and Monacelli (2005)'s small open economy paper, where the extension is that I have 2 focal small open economies A and B instead of just 1. I have had to specify A and B as having different relative risk aversion coefficients because if they were the same, there wouldn’t be 2 unique international risk sharing conditions and the model becomes unsolvable.

When I run my .mod file though, it is unable to find a steady state for the vast majority of the equations, although I’m expecting them to all be 0.

I have attached .mod file and a list of conditions although I’ve to stay consistent with GM(2005)'s notation as much as possible.

Does anyone have any idea on what is wrong and how I could fix this issue? Thank you very much for your time in advance!

Conditions.pdf (110.4 KB)
Draft1.mod (7.0 KB)

You either need to have all constant terms in your equations or none. rnat contains the constant rho, so all variables depending on it need to consider the constant terms as well.

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