Two sectors NK model

[jpfeifer]

See

The Jacobian is singular but Dynare still gives me results

Most of the problem comes from your use of log(Phi) = (1-rho_phi)*log(STEADY_STATE(Phi)) + rho_phi*log(Phi(-1)) + Eps_phi; The steady state of Phi cannot be endogenously computed, it seems. If you use log(Phi) = (1-rho_phi)*log(varphi) + rho_phi*log(Phi(-1)) + Eps_phi; i.e. replace the steady state operator by the steady state you set in the steady_state_model-block, one of the warnings disappears. For the other shock processes, the problem seems to be the same.

Fixing this in Model_T2.mod (4.1 KB) results in only one collinear relationship. Maybe that will help. Could it be that you are trying to pin down nominal levels that are not determinate in NK models?