I am solving a multi industry model with a monetary and a macroprudential rule. When I run the model I do not get any particular error but the Theoretical Moments show up as NaN.
Model diagnostics detects a colinear relationship between the productivity shock and the macroprudential rule, and suggests there maybe a redundant equation. However, I have four optimizing agents and I am excluding one of the four budget constraints, therefore I was not expecting to have issues concerning the Walras’ Law.
I think now it should be possible to run it (by running the .m file SS_120521.m).
In the model I have four optimizing agents among which two are savers and two are borrowers. The problem seems to be a collinear relationship between the two Euler Equations of the savers. I understand that since they have the same discount factor two Euler Equations may seem redundant, but I thought that since consumption of the four agents is different, there must be four Euler Equations anyway, correct?
I think this could potentially cause a problem. For example, if I have two optimizing agents with the same discount in their Euler (presumably the Euler originates from optimizing over a budget constraint) and an equation which pins down the aggregate objective variable (consumption, for example), how do I pin down the steady-state value of their respective objective variables?
I believe this is the reason why Iacoviello chooses different discount factors for all of the agents in his Financial Business Cycles paper.