Negative initial values

Stochastic simulations
1

Hi,

I have a question regarding negative initial values and how to interpet them. For example, in Gerali et al. (2010) model found in MMB base, a lot of initial values used to solve the model are negative, like consumption, housing, interest rate etc. The model is also expressed in logs - exp().

So does this initial values and their sign actually mean something?

Kind regards

2

Hi,

If the model is expressed in logs (i.e. each variable X is replaced by e^x), then the steady state is for the variables in logs (x, not X). So it is possible to have a negative value in the steady state if the level of the original variable (X) is smaller than one, and it makes sense to use a negative initial guess for these variables.

Best,
Stéphane.

1 Like
3

@stepan-a thank you very much for your help