Hi everyone.
I have a simple question on how to set up a model with a level specification of exogenous shock.
As usual, a log-level specification of exogenous shock is widely used.
However, in my project, I try to use not the log-level specification but the level specification shock for some reasons.
For instance, in a case to use a log-level specification of an exogenous shock, we use
exp(y) = exp(z)exp(k(-1))^alphaexp(n)^(1-alpha)exp(h(-1))^(1-alpha);
z = (1-rho) + rhoz(-1) + e;
with initial value z=1;
Thus, my main question is as follows:
To adopt the level specification of an exogenous shock, Is it right to set up a model like this?
exp(y) = exp(z)exp(k(-1))^alphaexp(n)^(1-alpha)exp(h(-1))^(1-alpha);
exp(z) = (1-rho) + rhoexp(z(-1)) + e;
with initial value z=log(1);
Sincerely.