Hi, I have a non-linear model. I have log linearized all the equations except the exogenous shock, which is an AR(1) shock to variable u^b_t in the non-linear model. I have inserted the two following equations in Dynare:
I have the following error for the second equation (#3):
ERROR: If the model is declared linear the second derivatives must be equal to zero.
The following equations had non-zero second derivatives:
* Eq # 3
I wanted to know how I should linearize the shock equation or solve this error in another way.
Is there any way that I can have a nonlinear equation in a linear model?