Negative steady state

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Negative steady state

Postby rox17 » Fri May 23, 2014 9:33 pm

Hello,

I performed a NK DSGE model for a small-open economy. I wrote the equations in log-linear form, not dev from ss, in order to find a steady state.
Inflations and terms of trade weren't diff(1) because they were stationary; gdps, the exchange rate and interest rates were log diff
In the estimation, "steady" shows negative values for most of my observable variables.
- attached the mod and data files -
Please help.
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Re: Negative steady state

Postby jpfeifer » Mon May 26, 2014 1:46 pm

You are confusing something here. You either log-linearize your model by hand and then do not use variable substitution by putting everything in exp() OR you let Dynare do the log-linearization by entering the non-linear equations and putting everything in exp().

In your case, you log-linearized the model so that all variables have steady state 0. But then you also put them in exp(), effectively defining them as the log of a logged variable. As a consequence, the new variables have steady state log(0)=Inf. This results in the problems.
------------
Johannes Pfeifer
University of Cologne
https://sites.google.com/site/pfeiferecon/
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Re: Negative steady state

Postby rox17 » Tue May 27, 2014 8:02 am

Thank you so much for you response. I understand now.
Have a nice day!
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