Galí, Monacelli (2005)

Hello,
I am trying to replicate the Gali and Monacelli (2005) SOE model using Dynare. However I need to replicate the model in level (without log-linearization). Has anyone attempted to do it already?

I went through Eric Sims (2014) notes on “A New Keynesian Model with Price Stickiness” to see how to deal with the Calvo pricing (how to write the optimal resetting price, Euler equation, etc.). However, I am kind of lost in how to add the open economy features there (what I have to add, what equations I have to focus on, etc.). Can somebody please give me a hint? I will appreciate any help, thank you :).

A starting point are
https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Gali_2015/Gali_2015_chapter_3_nonlinear.mod
and
https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Gali_2015/Derivation_Recursive_Pricing_Equation.pdf

Thank you, I went through the notes you have sent (luckily, most of it was similar to Sims’ derivations) and tried to add the SOE features. However, it seems I have something wrong. Here is the code I am using:

GaliNKCH7.mod (2.9 KB)

Can you please try it and see if you can find the mistake?

The Matlab states that I have residuals at equation 10 and 12 (Real MC and h(S) which is an auxiliary function to replace [Aggregate Price / Domestic Price] ratio - following Gali’s appendix).

I am following the SOE model from Gali Chapter 7. I have changed the production function from Y=AN to Y=AN^(1-alpha), though (since I will be adding capital once I will be able to replicate it in levels).

I put comments on variables / equations that might be unclear but if anything else will still be unclear I can describe it more (I have also the derivations in OneNote so I can upload that here too if needed).

Sorry, I currently don’t have the time to check the computations. Some time ago I gave the Chapter 8 a try, but I got different results than the linear model. Maybe you spot the mistakes.

Gali_2015_chapter_8_nonlinear.mod (9.7 KB)

Do you have the derivations of the nonlinear equations in the Chapter 8?

No, unfortunately, I don’t have a clean derivation I could post.