Gali & Monacelli 2005

Dear Mr. jpfeifer,

I’ve downloaded your code Gali_Monacelli_2005.mod, but I was wondering why there is no Omega in equation (35):
ynat = Gamma*a + alpha*Psi*ystar
and no rho in equation (37):
rnat = -sigma_a*Gamma*(1-rhoa)*a + alpha*sigma_a*(Theta+Psi)*(ystar(+1)-ystar).

I thought it was to simplify the calculation of the steady state of the model , incorporating constant terms in some definitions. So I’ve tried to written these equations using rho and Omega with the initval command.
Dynare couldn’t find the steady state and I suspect that there is some other equation that I have to adjust to do that. But despite I tried to open all the calculations. In particular, I suspect that equation (35) (natural level of output) is not consistent with equations (22) and (27), since the output is not around Omega.
Would you help me, please?

Usually, you either need the constants in all equations or none. I decided to go for leaving out the constants as not all required constants were given in the paper.

Thanks for your answer, professor.
Just one more question: are these constants relative to approximations in log-linearized equations or maybe is there some other reasons? For example, I can’t see why rho could be excluded from the natural rate of interest since beta<1.

These constants are related to the steady state. If you leave them out, you have everything in deviations from steady state.

I’ve got it! Thank you so much, professor.