Rank condition isn't verified

Dynare help (legacy posts)
1

I’m trying to do an extension of Aguiar & Gopinath’s paper ‘the cycle is the trend’ by adding a second country, so the model contains 2 countries symmetric everywhere except the variance of their shocks.

The code shows the message “There are 9 eigenvalue(s) larger than 1 in modulus for 8 forward-looking variable(s). The rank condition ISN’T verified!” I am new to dynare and matlab in general, so I’m having trouble finding the source of the problem. Any insights would be greatly appreciated!
Twocountry.mod (4.87 KB)

2

Hi,

the message returned by Dynare means the steady state of your model is not stable (there is a unit root). This issue
is well described in the literature about to country RBC model.

Best, Stéphane.