Hello ,

I’m new in Bayesian estimation and I’ve made an code based on Gali and Monacelli 2008, but I have some doubts related to Unit Roots.

In my model, i have data for inflation, GDP, nominal interest rate, term of trade and debt to GDP ratio. And all of it has an unit root or strutural break, how can I define it in my model? To mitigate unit roor I’ve put it in this way:

DLGDP = GDP - GDP(-1);

DLINFLATION = Inflation_H- Inflation_H(-1);

DLGDPGAP = GDP_GAP - GDP_GDP(-1);

DLNOMINALINTEREST = nominal_interest_rate- nominal_interest_rate(-1);

DLTOT = Term_of_trade - Term_of_trade(-1);

DDEBT = debt(+1)- debt;

But, I am not pretty sure whether it is correct. Could someone help me?

Thanks in advanced,

Elder Souza