I’m trying to run this model, but it says my trends are not compatible…
I have checked and double checked the growth trends, and the trend declarations seem correct. I would be very grateful if someone could please take a look at the code and trying to point out the error.
Thanks in advance!
model_error_trend.mod (5.27 KB)
My guess is that the prices P and Pstar do not have a trend (unless you have trend inflation) while g1 and g2 grow with the rate of output. At the same time,
A = K + 1/R * M_d(+1)/P + Pf/P;
cannot work if M_d is not growing as otherwise the interest rate must have a trend
Thanks for your response!
There is trend inflation. Both “grow” at rate ((1+x)*(1+n))^(-1)
g1 grows at rate ((1+x)(1+n))^(1-epsilon) and g2 at rate ((1+x)(1+n))^(2-epsilon) [and this means PStar grows at rate ((1+x)*(1+n))^(-1)]
I don’t know your model. But where does this “trend” come from? It is quite unusual for prices to grow at the rate of output.
Under a fixed supply of money, I’d have
M/P = C * L®;
1/P must grow at the same rate as C, which is (1+x)*(1+n)…
(in ss, my price level decreases at the same rate as output, under a fixed money supply)