Thank you. But then, what is the value of b in steady state, is that 1? I am not sure about it since I got error.

var c k y b h g y_h i w r c_y log_y log_h log_y_h log_w log_c log_c_y ;

varexo eps_g eps_b;

parameters delta psi alpha beta mu_g rho_g ;

% Parameter Values

beta = 0.95;

psi = 0.33;

alpha = 0.68;

delta = 0.07;

mu_g = log(1.0066);

rho_g = 0.1;

Model;

y = k(-1)^(1-alpha)*exp(g+b)^(alpha-1)**h^alpha;*

log(g) = (1-rho_g)*log(mu_g)+rho_g*log(g(-1))+eps_g;

log(b)=log(b(-1))+eps_b;

r = (1-alpha)(y/k(-1))*exp(g+b);*

w= alpha(y/h);

c^(-1)= exp(g(+1)+b(+1))^(-1)*beta*c(+1)^(-1)(1+r(+1)-delta);

h^(1/psi) = c^(-1)*w;

y_h = y/h;

c + k = y + (1-delta)*k(-1)*exp(g+b)^(-1);

i = y-c;

c_y=c/y;

// use logarithm to get variables in percentage deviations

log_y=log(y);

log_h=log(h);

log_y_h=log(y_h);

log_w=log(w);

log_c=log©;

log_c_y=log(c_y);

end;

steady_state_model;

g = mu_g;

% b= 1;

r=(1/(beta*exp(mu_g)^(-1))-(1-delta));*

y_k=r/((1-alpha)*exp(mu_g));*

k_y=(1-alpha)/r;

i_y=(1/y_k)(1-(1-delta)*exp(mu_g)^(-1));*

c_y=1-i_y;

h= (alpha1/c_y)^(psi/(1+psi));

k=(((exp(mu_g)^(alpha-1)(h^alpha))/y_k))^(1/alpha);

y=k^(1-alpha)*h^alpha*exp(mu_g)^(alpha-1);

c=c_y*y;*

i=i_yy;

y_h =y/h;

w=alpha*(y_h);

log_y=log(y);

log_h=log(h);

log_y_h=log(y_h);

log_w=log(w);

log_c=log©;

log_c_y=log(c_y);

end;

shocks;

var eps_g; stderr 0.01;

var eps_b; stderr 0.01;

end;

resid(1);

steady;

check;

stoch_simul(order=1, periods=1200, nofunctions) y h y_h c_y;

// Rebuild non-stationary time series by remultiplying with A_{t} and B_{t}

log_Gamma_0=0; //Initialize Level of Technology at t=0;

log_s_0=0; //Initialize Level of Technology at t=0;

log_Gamma(1,1)=g(1,1)+log_Gamma_0; //Level of Tech. after shock in period 1

log_s(1,1)=b(1,1)+log_s_0;//Level of Tech. after shock in period 1

// reaccumulate the non-stationary level series (non-stationary log-level variables)

for ii=1:options_.periods

```
log_Gamma(ii+1,1)=g(ii,1)+log_Gamma(ii,1);
log_s(ii+1,1)=b(ii,1)+log_s(ii,1);
log_y_nonstationary(ii+1,1)=log_y(ii,1)+log_Gamma(ii,1)+log_s(ii,1);
log_h_nonstationary(ii+1,1)=log_h(ii,1)+log_s(ii,1);
log_y_h_nonstationary(ii+1,1)=log_y_h(ii,1)+log_Gamma(ii,1);
```

end