Colinear relationships SOE Model

[jpfeifer]

One issue seems to be

Levels versus Growth Rates

You are confusing something. If collinearity arises after using the steady_state operator, what you have done is exactly to remove the capability of the model to determine the steady state of that variable as a function of the parameters. Take again the example of the Fisher equation and steady state inflation. If you exogenously provide the steady state inflation pibar (which cannot be endogenously determined), you can endogenously compute the steady state nominal interest as the product of re…

for example in

log(A/steady_state(A))=rho_A*log(A(-1)/steady_state(A))+sigma_A*e_A;