Does everything have to grow at the same speed?

Dynare help (legacy posts)
1

Hi I am wondering if everything have to grow at the same speed in mod file?

I have a new keynesian model in which the tfp is growing at mu
log(TFPt/TFPt-1)=mu

I stationarize everything by dividing with TFP. Since output is also growing at mu, output/tfp is a stationary variable. The euler equation basically pins down the interest rate.

I have a problem though with price, in this setup, price is growing at a rate of inflation, which is implied by taylor rule, so price is growing at constant+0.7mu.
How should I deal with this? Can I stationarize price by dividing with TFP also?

2

No, you have to write everything in terms of the inflation rate as the price is non-stationary. See for example the toy model at the beginning of Pfeifer(2013): “A Guide to Specifying Observation Equations for the Estimation of DSGE Models” sites.google.com/site/pfeiferecon/Pfeifer_2013_Observation_Equations.pdf on this.