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How can deal inflation and price since prices donot has S.S.
Posted:
Sun Mar 30, 2014 3:52 amby ahnulxy
I do not know how to deal with Price and Inflation in mod file:
pi = P/P(-1);
if inflation pi has steady state 1.005 for quarterly data, and Price does not have a steady state at all. I am not sure it is work in dynare or not if I put it in my mod file?
I want to recover the IRF for price level after a monetary policy shock. So I need to have price level input.
Re: How can deal inflation and price since prices donot has
Posted:
Sun Mar 30, 2014 8:27 amby jpfeifer
In many models (e.g. interest rate rule) the price level is non-stationary, so you cannot have prices in the model. They will not return to a steady state. I am not sure what you want to do, but you can recover the IRF for prices from the inflation rates by noting the definition of prices. We have that
log(Pi)=log(P)-log(P(-1))
This implies that
log(P)=log(Pi)+log(P(-1)).
If you assume that P(0)=1, you can use the IRF for inflation to manually recover the price level. The procedure is similar to recovering the IRFs of nonstationary output after a permanent technology shock as shown in the Aguiar/Gopinath (2007) mod-file on my homepage.
Re: How can deal inflation and price since prices donot has
Posted:
Sun Mar 30, 2014 5:51 pmby ahnulxy
Thank you very much!
Is there any way to deal with non-stationary variables in Dynare?
Is Unit_root_var command still available?
Re: How can deal inflation and price since prices donot has
Posted:
Mon Mar 31, 2014 12:08 pmby jpfeifer
What you mean with "deal with non-stationary variables"? For stoch_simul, unit roots are no problem.