Confusion about the practical application of temporary and permanent shocks

[jpfeifer]

See

Basic rbc model with temporary and permanent shocks

An alternative is to have both a stationary and a unit root shock in an undetrended model: var y, c, k, a, h, a_temp, a_perm; varexo e, u; parameters beta, rho, alpha, delta, theta, psi, tau; alpha = 0.36; rho = 0.95; tau = 0.025; beta = 0.99; delta = 0.025; psi = 0; theta = 2.95; phi = 0.1; model; c*theta*h^(1+psi)=(1-alpha)*y; k = beta*(c/c(+1))*(alpha*y(+1)+(1-delta)*k); y = exp(a)*(k(-1)^alpha)*(h^(1-alpha)); k = (y-c)+(1-delta)*k(-1); a = a_temp+a_perm; a_temp=rho*a_temp(-1) +…