Trends not compatible?

[matheus_silva92]

Hi,

I'm trying to run this model, but it says my trends are not compatible...

ERROR: trends not compatible with balanced growth path; the second-order cross partial of equation 14 w.r.t. trend variable X and endogenous variable PStar is not null.

I have checked and double checked the growth trends, and the trend declarations seem correct. I would be very grateful if someone could please take a look at the code and trying to point out the error.

Thanks in advance!

[jpfeifer]

My guess is that the prices P and Pstar do not have a trend (unless you have trend inflation) while g1 and g2 grow with the rate of output. At the same time,

Code: Select all

    A = K + 1/R * M_d(+1)/P + Pf/P;


cannot work if M_d is not growing as otherwise the interest rate must have a trend

[matheus_silva92]

Hi,

Thanks for your response!

P and Pstar do not have a trend (unless you have trend inflation)

There is trend inflation. Both "grow" at rate ((1+x)*(1+n))^(-1)

while g1 and g2 grow with the rate of output

g1 grows at rate ((1+x)*(1+n))^(1-epsilon) and g2 at rate ((1+x)*(1+n))^(2-epsilon) [and this means PStar grows at rate ((1+x)*(1+n))^(-1)]

[jpfeifer]

I don't know your model. But where does this "trend" come from? It is quite unusual for prices to grow at the rate of output.

[matheus_silva92]

Under a fixed supply of money, I'd have

M/P = C * L(R);

1/P must grow at the same rate as C, which is (1+x)*(1+n)...

(in ss, my price level decreases at the same rate as output, under a fixed money supply)

[jpfeifer]

We will investigate the issue, see https://github.com/DynareTeam/dynare/issues/1389