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Symbolic Stationarization of Dynamic Equilibrium Models

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  • Fabio Canova
  • Kenneth Sæterhagen Paulsen

Abstract

Dynamic equilibrium models are specified to track time series with unit root-like behavior. Thus, unit roots are typically introduced and the optimality conditions adjusted. This step requires tedious algebra and often leads to algebraic mistakes, especially in models with several unit roots. We propose a symbolic algorithm that simplies the step of rendering non-stationary models stationary. It is easy to implement and works when trends are stochastic or deterministic, exogenous or endogenous. Three examples illustrate the mechanics and the properties of the approach. A comparison with existing methods is provided.

Suggested Citation

  • Fabio Canova & Kenneth Sæterhagen Paulsen, 2021. "Symbolic Stationarization of Dynamic Equilibrium Models," Working Paper 2021/18, Norges Bank.
    • Handle: RePEc:bno:worpap:2021_18
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    File URL: https://hdl.handle.net/11250/2835495
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    References listed on IDEAS

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    Keywords

    DSGE models; unit roots; endogenous growth; symbolic computation;
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