Growth of variables and unit root


#1

Hi Dynare guys,

I need to add the growth of some variables such as (x dot t)= (xt) - (xt-1) into my model but this creates the unit root problem and taking a long time for the variables to get back to the steady state. Does anyone know how to deal with this?! (I give a zero initial value for all the variables).

Any help would be appreciated.

Cheers


Linking Dynare to Matlab code
#2

Hi there ı have faced the same problem, have you fixed it? Is therd anyone to help?


#3
  1. The initial question does not make sense. A unit root variable will not go back to steady state.
  2. Sometimes, one can divide by the stochastic trend to end up with a stationary model.
  3. But there are models where the unit root is a feature. In this case, there is nothing you can do about it.