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.