Questions about the code of Iacoviello and Neri (2010)

General DSGE Modeling
1

Dear Professor Pfeifer,

I have been learning the model of Iacoviello and Neri (2010) for a few days, and find that this model is quite different from the others as it includes the balance growth path.

I am very confused that

(1) why this model should embed the BGP trend into it (which makes the code more complicated )? Is this necessary ?

(2) What’s the advantage of this kind of model ?

(3) Can I just eliminate the BGP trend when replicate the code of the model and reach the same results?

Any reply will be appreciated, thank you so much !

2
  1. The reason is that there are various trends in the data these authors are looking at that play a role for the results.
  2. The advantage is that you can study the effect of the different trend growth components
  3. No, you cannot do this. See points 1 and 2.