Hi All, instead of the standard way to define an exogenous income process as y=exp(w)y(-1) where w=rhow(-1) + e , now I need to generate income as y(+1)=exp(alpha*(TREND+1)+eta(+1)) where eta(+1)=theta*eta+e(+1).
I would like to know how I should include this deterministic trend (TREND). What about if the trend is stochastic?.
That means your economy has a deterministic growth rate of exp(alpha). Usually it is best to detrend the model by hand. An example is the RBC_news_shock_model.mod on my homepage, where the economy grows at rate gammax. The basic reference would be King/Plosser/Rebelo (1988).
thank you so much…