About output in Gerali et al (2010)

Dear all,

Hello, everyone. I’m a beginner of Dynare and trying to expand someone’e code of Gerali et al (2010) for my thesis.

In the code, I’m so wondering why the output is replaced by the variable, ‘Y1’.

Someone said the variable is intermediate output. But I don’t really understand the reason of the use.

  1. Does the one ensure that ‘Y1’ reflects the whole market clearing condition? The condition includes all management cost and adjustment costs.

  2. Why does the central bank’s equation use the Y1 as output? How can it be consistent with the RETAILERS’s equation that use output as production function?

Thank you so much in advance.

Without wax,

Sangun Shin.

P.S) I will deal with the parameter dependence. :slight_smile:

Gerali_estimation.mod (25.3 KB)

Y1 Is the output evaluated at the steady state prices. The authors use this variable (as growth rate) instead of the output gap inside the Taylor rule. If I Remember correctly, using a proper definition of the output gap (ad in the code of the MMD) does not change the results


Oh, I see now.

I think the bank’s management cost also does not matter for results, since the ratio of the bank’s capital to output(not Y1) is 0.189, which means that the value perhaps is not quite effective in the Taylor rule.

Thank you so much again for you reply.

Best wishes,

Sangun Shin.