Hi guys,
I am still working on this problem. I tried to solve it as suggested by Mr.Pfeifer in a post regarding a similar topic:
Re: How can deal inflation and price since prices donot has S.S
Postby jpfeifer » Sun Mar 30, 2014 8:27 am
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.
I tried to do so by setting the initial values of the price equal to 1. Nonetheless, this is the error message I get:
Error using print_info (line 80)
The steady state contains NaN or Inf
Error in steady (line 92)
print_info(info,options_.noprint, options_);
Error in g_m_2008 (line 266)
steady;
Error in dynare (line 180)
evalin('base',fname) ;
Do you have any ideas how to solve this? Attached you find my code.
Regards