Model with durable good - rank condition ISN'T verified

  1. Without knowing the model in more detail it is impossible to tell. What you describe sounds sensible, but in the end depends on your numeraire, i.e. in which currency/units you want to express it.
  2. Such a behavior is not unusual with jump variables, so I am not too surprised.
  3. Yes, your model provides linear deviations. I would not go for a full substitution. See