Jordi Gal (2008): Chapter 2


I download the code of “Jordi Gal (2008): Monetary Policy, Inflation, and the Business Cycle, Princeton University Press, Chapter 2” from jpfeifer’s site, but after I linearizing it, Blanchard Kahn conditions are not satisfied. I know that the variable is not the same as before-linearized variable, which means the deviation from the steady state and initialize them to zeros. But what is the problem? I am a new learner, maybe confused with some details. I keep the original code for comparison, Can someone check this for me? Thank you!

lGali2008_chapter2_static.mod (3.87 KB)

When you log-linearize the model, you cannot do this selectively only for some equations. You did for example not correctly log-linearize the Taylor rule (presumable because it is already linear). The Taylor rule is still in levels and implies that the gross interest rate and gross inflation rate are 0