Variables with negative values - linearization vs loglinear

[YHS]

Please refer to the following post:

Non-linear vs. exp() vs. log-linearized models

Regarding 2: you cannot take logs of variables whose steady state is 0. Hence, putting them in exp() is not possible. The same by the way applies to variables with negative steady states like e.g. the net foreign bond position of an indebted country. Usually you just leave those variables without the exp(), i.e. only linearized. Regarding 3: Log-linearizing the model by hand only shifts the steady state computation problem to setting parameters like Cbar in your example. For those you still hav…