Hi,

How do you simulate a local-linear-trend process directly? To be explicit, can you simulate y where

y = y(-1) + mu + x

x = rho*x(-1) + e
without resorting to writing the model as
z =mu + x
x = rho*x(-1) + e

and cumulating simulated z to obtain a simulated y?

If you run the attached program (with the _steadystate.m file), simulated y makes no sense (given the trend and variance, it should be a straight line).

The reason I ask is that I am estimating a much bigger model that includes several unit root variables as observables, and simulating these observables

directly in levels by running stoch-simul on a calibrated version seems to produce nonsensical results.

Thanks for your reply.

Pierre

llt_steadystate.m (109 Bytes)

llt.mod (291 Bytes)