Hi everyone,
I am using the Dynare code for the paper of GPU (2010)
Blockquote García-Cicco, Javier and Pancrazi, Roberto and Uribe, Martín (2010): “Real Business Cycles in Emerging Countries”, American Economic Review, 100(5), pp. 2510-2531.
This code is provided by Prof. Pfeifer at
I have two confusing issues about this code. Can some one explain it for me
Firstly, in regard to the definition of trade balance
Blockquote line 165-166 such as
%4. Trade balance
log(tb)= d - d(+1)*g/r; (1)
As The appendix of the original paper, the section 2:" Equilibrium Conditions in Stationary Form", the equation for Resource constraint, on page 2 appendix.pdf (99.1 KB) , the trade balance is tb= d - d(+1)*g/(1+r); this is gross interest rate in the denominator but in Pfeifer’s dynare code indicates that only interest rate in the denominator as the expression (1) above. What is difference here?
Secondly, in regard to the log form of trade balance, trade balance can be either positive or negative, but why in the dynare code calling the log form of trade balance,
Blockquote see the line 165-166
%4. Trade balance
log(tb)= d - d(+1)*g/r;
and the line 183 -184 (measurement of trade balance to gdp)
%10. Definition trade-balance to output ratio
log(tb_y) = log(tb)/y;
Thirdly, in regard to my computation for observed trade balance as in Prof. Pfeifer’declare as
Blockquote
log(tb_y)
in the line the line 183 -184 (measurement of trade balance to gdp)
%10. Definition trade-balance to output ratio
log(tb_y) = log(tb)/y;
since trade balance is either positive or negative, I do not compute its log form. In stead, the trade balance per capita is the level difference between exports and import (subtracting the exports per cap from the import per cap. These two series are measured in the constant 2010 USD term). Next step, the trade balance to GDP is computed as dividing the trade balance by the real gpd per cap. This step makes me confusing such as whether trade balance to output should be computed as dividing the trade balance by the trend of output as mentioned by Uribe and Schmit-grohe on their slide page number 10 at
Blockquote http://www.columbia.edu/~mu2166/book/empirics/slides_empirics.pdf
then take the cyclical component ( the percent deviation from the quadratic trend) as the observed variable of trade balance to GDP
or trade balance to gdp is just computed as dividing trade balance by gdp (in level) but not taking the cyclical component
In short, how to compute the observed variable of trade balance to GDP in correspond to its theoretical counterpart in the model?
Thank you so much indeed
Best wishes