try15.mod (5.6 KB) Hello everybody. I am currently working on a deterministic model of an small open economy. I have been able to simulate transitory shocks but some variables don’t return to the SS. I believe this is because I can’t add the following equation to my model, NX_T = 0, Net Exports must be zero in the last period.

Exogenous shocks can’t solve this problem, because they only move the value of the variable in the period(s) where it happens. It must be a part of the model block so the agent knows what is happening beforehand.

Is there any way to write something similar to NX(T)=0 in the model block? Or al least the sum of every NX = 0? Let me know!

Another alternative could be describing the market clearing condition in parts. For example:

for periods 1:39

Y = C + I + G + NX

for period 40

Y = C + I + G

Is there any way to include something like this in the model block?

Your model has a unit root. So transitory shocks will have permanent effects.

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Can I do something to remedy this? Like maybe add the agent’s Constraint equation to the model?

You need to think about the economics of your problem. Is the unit root a bug or a feature of your model? Why should your model go back to the old steady state? Unit roots are a well-known feature of small open economy models.

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Thank you! I had never worked with these assumptions before and thought something must be wrong.