Bayesian estimation with unit root

[jpfeifer]

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A nonstationary model for output gap with a const in drift

The problem is that Dynare tries to approximate around the steady state, which does not exist if there is a drift. But as the model is already linear, the approximation point does not really matter. For that reason, you cannot use an initval block, which gives just the starting values for the steady state finding. Rather, you need to provide a “steady state” via the steady_state_model block and make sure that the correctness of the “steady state” is not checked via the nocheck option. The diff…