Numeraire and Real Prices

Dynare help (legacy posts)
1

Dear Forum,

I am a beginner in DSGE models and dynare and have a very basic question,
I am estimating a simple NK model with standard price and wage rigidities,
I was wondering if I should consider numerair in calculating steady state (taking one of prices equal to one), even when prices are stationarized (all nominal prices are divided by price of output to be transformed to reals). Or with real prices I should be able to calculate the steady state values?
Please help me if you can.
Thanks

Martin

2

You need to transform everything into real prices and then make an assumption about steady state inflation (not the price level itself). For example, when transforming the nominal budget constraint into a real one, you get an expression P_t/P_t-1, which is inflation. In steady state, it won’t be determined from other equations of the model.