I would like to kindly ask you for a help. I am currently working on the model derived in Gerali et al. (2010). I have the replicated code from the MMDB. I do understand it quite well.
However, I do not understand where to get the initial values of the variables. I can compute just some of them (such as interest rates). Please can you help me in this regard? Is there anybody familiar with this model and can provide with some guidance on the initial values?
Thank you very much for helping me.
Have a nice day
You compute the steady state and use it as initial values. To solve for the steady state you have to take the model equations, remove any time indexation and find each variable as a function of the parameters only. Then use their solutions to initiate your variables.
Thank you for reply. This is what I exactly do. However, it seems that some of the values are set purely numerically - not computed based on the steady states relations.
That is why I have this problem. Maybe it is just my inability. Therefore, I am asking for a help.
Why are you interested in initial values? If you are able to compute the steady state analytically, you should always use that info and forget about
I am interested in initial values because I want to replicate the model and use it for an analysis of another country. Therefore, I need different steady state of the model than for the euro area. The problem is that I cannot compute the steady states. I can express just few variables (in st. st.) as parameters of the model. And then it seems that certain values of initial values are assigned numerically. But I do not know how to assign them.
There is no good rule for this. Often it is trial and error. My guess is that the values for the euro are should work in most cases as the steady state in many models is rather similar. A lot of parameters mostly affects the dynamics.