Trends not compatible?

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Trends not compatible?

Postby matheus_silva92 » Fri Feb 03, 2017 1:17 pm

Hi,

I'm trying to run this model, but it says my trends are not compatible...

ERROR: trends not compatible with balanced growth path; the second-order cross partial of equation 14 w.r.t. trend variable X and endogenous variable PStar is not null.


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!
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model_error_trend.mod
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Re: Trends not compatible?

Postby jpfeifer » Fri Feb 03, 2017 7:43 pm

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,
Code: Select all
    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
------------
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https://sites.google.com/site/pfeiferecon/
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Re: Trends not compatible?

Postby matheus_silva92 » Fri Feb 03, 2017 7:59 pm

Hi,

Thanks for your response!

P and Pstar do not have a trend (unless you have trend inflation)

There is trend inflation. Both "grow" at rate ((1+x)*(1+n))^(-1)

while g1 and g2 grow with the rate of output

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)]
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Re: Trends not compatible?

Postby jpfeifer » Sat Feb 04, 2017 10:24 am

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.
------------
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University of Cologne
https://sites.google.com/site/pfeiferecon/
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Re: Trends not compatible?

Postby matheus_silva92 » Sat Feb 04, 2017 6:46 pm

Under a fixed supply of money, I'd have

M/P = C * L(R);

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)
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Re: Trends not compatible?

Postby jpfeifer » Sun Feb 05, 2017 4:52 pm

We will investigate the issue, see https://github.com/DynareTeam/dynare/issues/1389
------------
Johannes Pfeifer
University of Cologne
https://sites.google.com/site/pfeiferecon/
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