Help with interpretation

Dear all,

I’m working on the model by Gerali et al. (2010) and found the code in the database of Volker Wieland. I’ve got a question concerning the way they wrote the model. In particular, what I don’t understand, is whether they did right to take the exp() of the interest rates or whether it should not be the case. From my understanding this would make sense if Interest rates were gross (R_gross=1+R_net), then taking the log-deviation of R_gross from SS would be equivalent (approximately) to the (non-log) deviation of R_net from its SS value. Can anyone tell me whether they did a mistake, and if not what’s wrong with my line of thought? I’m attaching the file for simplicity (as I said, it’s taken from the MMB).

Best and thanks a lot in advance.
EA_GNSS10_rep.mod (24.8 KB)

If you consistently substitute the net interest rate with exo() you will not be changing the results of the model. The only problem is that the interpretation for that variable becomes strange, because we are now talking about the percentage deviation of a net interest rate from its steady state.