Hi everyone,
I am replicating Gali and Monacelli (2005) in levels. To start, I am determining the natural model (with market power but no price frictions). Given the absence of nominal rigidities, I would expect no unit roots in the model since all variables are real, and there are no permanent shocks (I have two shocks).
However, my output shows the following eigenvalues:
Could someone help me understand what is happening here? Any guidance would be greatly appreciated!
Thank you very much,