Dynare forums

Hello all,

This isn't a dynare question, but I'm having problems figuring out exactly how log-linearizations happen in a lot of these papers. Looking specifically at Fernandez-Villaverde and Rubio-Ramirez (2006), I'm not sure how they get to equation (5) on page 28. See the attached PDF for more details on my problem in understanding how exactly they do the log-linearization.

Thank you for your help.

Easy. Your have to subtract the steady state from both sides. You have an equation of the type

Code: Select all

a_t+b_t=c_t

Your Taylor approximation is

Code: Select all

a*(1+hat a_t)+b*(1+hat b_t)=c*(1+hat c_t)

As in steady state

Code: Select all

a+b=c

you can subtract this from the above equation to get

Code: Select all

a*(hat a_t)+b*(hat b_t)=c*(hat c_t)

Thanks!