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Dear Johannes,

Could I ask you a question on how to deal with trade balance in model?

If trade balance is linearized while all other variables are log-linearized, should I do like attached pdf? (If so, trade balance data directly matches model trade balance variable? but we do not know steady state of stationary out...).

Please find attached pdf.

Many thanks,
Huan

What you should probably do is use the trade balance to GDP ratio. Both in your model and in the data, the ratio of net exports to GDP is measured as percent of GDP. Therefore, these objects should perfectly coincide and be stationary.

jpfeifer wrote:What you should probably do is use the trade balance to GDP ratio. Both in your model and in the data, the ratio of net exports to GDP is measured as percent of GDP. Therefore, these objects should perfectly coincide and be stationary.

Dear Johannes,

Many thanks. Could you please have a look the attached pdf, where I write the process to deal with this trade balance to GDP.

y , c, I, g are all log-linearized while tb/y is linearized. And model tb/y directly matches data tb/y.
In the model block, I use this command

Code: Select all

model(linear)

Are all there right?

Kind regards,
Huan

It looks correct