Stochastic Growht Trends in Open Economy Models

[christoph]

Hi all,

I´m trying to estimate (/partially calibrate) a standard open economy DSGE model with three regions exhibiting different stochastic growth trends (random walk with drift). I would guess that I have to stationarize the model equations by detrending the variables with their respective country-specific trend, but I´m not sure and could not find any hints on this topic in related literature. Does it simply work that way or do the differences in stochastic growth trends across regions add additional problems in stationarizing the model?

Thanks in advance for your comments

Christoph

[reubenpjacob]

Here is an example where they use different trends ( i think deterministic) in a multi-sector model. the steady-state growth path is quite complex and they also have an online appendix. may not be difficult to extend it to multiple countries.

https://docs.google.com/viewer?a=v&pid= ... jA4ZjljM2Y


cheers
Reuben

[christoph]

Thanks a lot for your reply. That´s a very interesting paper.