Dynare forums

Hi Michel,
I am simulating a large model (2 economies+rest of the world) using Dynare. The model in general works quite well. I log-linearize the model before simulating with Dynare. The steady-state values are all zero by definition and even if I ask Dynare to compute them it gives me zeros for all variables, Fine!
However, when Dynare solves the model it gives means of variables different from 0. I am not simulatig data, I am computing theoretical moments. How can this be explained? and is it really a problem for the rest of the results: irfs and second order moments...
Note: there are price levels in the model.

Thanks

Nooman

Hi Nooman,

with second order approximation, the mean is different from deterministic steady state because of Jensen inequality.
Now if you log-linearized by hand before entering the model in Dynare, there shouldn't be any second order term, even if you requested second order by inadvertance. Maybe there is a typo in your equations and they aren't linear.


Best

Michel

Thanks Michel,
what you just said sound very reasonable. I am going to check again the linerized model.
Thanks

Nooman