Dear,

I am new to Dynare. Is it true that we need to take exponential for all variables in order to express them in non-linear form? For example, Y = C + I. Do I need to express it as exp(Y)= exp© + exp(I) in dynare for it to recognise that it is in levels instead of log-linearised form?

Or I only need to take exponential when only I mix both linearised and non-linear equations?

Regards

Hello Vannak,

it is not true that you have to do that in order to type a non-linear model into dynare. It is possible to enter equations in both ways you described.

Dynare actually calculates a linearization of the model-equations that you type in. What follows is that if you give it the equation as Y = C + I and when you then use stoch_simul it calculates absolute deviations from the non-stochastic steady state. The ‘trick’ with exp(Y) = exp( C) + exp(I) is that dynare then does a log-linearization for you and you will receive percentage deviations form steady state after you do stochastic simulations.

This is the reason many enter the model-equations that way, as they rather be interpreting percentage deviations.

Best

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