Dear professor jpfeifer,
Hope you are keeping well. I run a DSGE model with real money reserve (m) and all run well. But I find the steady state value of m negative !! What is this means? I hope you can help me, always thank you, professor.
book1EmM2.mod (1.3 KB)
When we have deflation(general decline in prices of goods and services) real money balance is less than 0.
\frac{M}{P} <0
In steady state situations I think it is unnormal to have \overline{m}< 0 .
Altough we have inflation in economy and deflation is very rare in reality.
Because in steady state sitation P_{ss}=1 therefore \overline{m} = \frac{\overline{M}}{\overline{P}}=\overline{M}.
It is unnormal to have \overline{M}<0.
That indeed does not make sense. A money stock cannot be negative. Your equation for m contains the term /(1-(1/1+r)), which is negative. Are you sure it is correct?
you are right. it was wrong. thanks a lot