Log-linearization, Galí 2007

Hi everyone

I am a student from the University of Berlin and I am currently working on replicating Galí (2007) article “Understanding the effects of government spending”.

Where I struggle is to log-linearize equation (5) describing the dynamics of Tobins-Q:

with the resulting log-linearized equation being (23) in the image.

The other equations are straightforward to log-linearize, but this particular one I struggle with. Any guidance in the right direction is much appreciated.


That should be straightforward. How far did you get, i.e. where is the problem?

Hi Johannes

First of all, thanks for offering your help. After hours of trial-and-error I finally managed to get it right. My problem was getting the right value of R^k, and Iuckily I found the steady state value herefor in the appendix. So I suppose the lesson is always to pay attention to details. :slight_smile:

Peter L.

Hi @peter_l

Me and my Bachelor mate are also currently stuck at this linearisation. At the moment I don’t have any clue how even to begin as nothing has made sense to this point. Would you be willing to share the derivation with us?