Hi everyone,

I was looking at Johannes Pfeifer’s mod file for the baseline NK model with non-linear first order conditions (github link posted below).

The model has zero steady state inflation and I want to modify it to incorporate trend inflation. I know that this requires modifying some of the FOCs and several equations in the steady state block. My question is in regard to the price level equation

Pi=P/P(-1);

With no zero steady inflation the static equation will not have a residual equal to zero. I have modified this equation to

Pi/steady_state(Pi)=P/P(-1);

where now the static equation has a zero residual. **My question is whether this is correct or there is another way to write this equation when inflation does not equal zero in the steady state?**

Any comments or examples of a small nk model with trend inflation would be much appreciated!

https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Gali_2015/Gali_2015_chapter_3_nonlinear.mod