Small Open Economy RBC model

Hi there,

I am using a standard small open economy RBC model to understand the importance of terms of trade shocks in Canada. I follow Grohe-Uribe (2003) to calibrate the model for Canadian data. However, I have some questions regarding the calibration procedure of some variables:

  1. I use the method of debt elastic premium to close the model. Now in the formula, there is a parameter, dbar(foreign debt level in steady state), my question is how do to I calibrate this parameter to match the Net Exports to Output ratio?
  2. The trade-balance to output ratio (tby) in the model is just tby = 1-c/y - i/y, this should be linearized NOT log-linearized. I am not sure why this would be the case. What I find in the data is that the NX/Y ratio is positive in the long-run.
  3. My intention is to log linearize the model around it’s steady state and compare the HP filtered statistics from the data to those obtained from the simulations. My query is if I don’t log linearize the model, instead I write the model in the non-linear format what is the difference of using log-linear option in the stoch_simul when writing a variable as exp(x) and just x? Also how should the TB/Y ratio be written in both the cases?

Thank you. Any help would be highly appreciated.

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