Trend variables

Dynare help (legacy posts)
1

Hi,

I’m working on a monetary model with technological and populational growth. Therefore, I should have 3 trend variables: technology growing at rate (1+gt), population at rate (1+gn) and money at rate (1+gm).

I’d like dynare to recognize that (1+gm) = (1+gn)*(1+gt) in the long run, but in the short run they may differ (so my price level changes).

For example, what I’m trying to do is:

trend_var(growth_factor= 1+gx) X; //technological progress
trend_var(growth_factor= 1+gn) N; //population
trend_var(growth_factor= 1+gm) M; //money supply

However, I keep getting the error message that my trends are not compatible.

So… Is it even possible to do this in Dynare? I know it’s possible to detrend the variables, but it would be extremely convenient if I could do it this way.

Thanks in advance,
Matheus

2

That should be possible if all variables are cointegrated. An example is at github.com/DynareTeam/dynare/blob/master/examples/fs2000_nonstationary.mod
Did you provide growth factors for all variables?

3

Hi Johannes,

Thanks for your response. Do you mind if I upload my code so that you can take a look at it?

4

I can have a look, but cannot promise anything.