strange condition in Lubik and Schorfheide (2007)
Posted: Tue Jun 30, 2015 8:43 amHi, I have been trying to reproduce Lubik and Schorfheide's 2007 paper.
The home country's CPI is defined as
P_t=(1-alpha)*P_ht+alpha*P_ft
=(1-alpha)*(P_ht-P_ft)+P_ft
=(1-alpha)*q_t+P_ft (1)
because GM2005 is small open economy model, then we have
P_ft=e_t+Pstar_t (2)
Substituting (2) into (1), and taking the first order differnce of (1)
Pi_t=(1-alpha)*Dq_t+De_t+Pistar_t
Woule you like to post your mod file? thank you