Norges Bank

Working Paper

Symbolic stationarization of dynamic equilibrium models

Author:
Fabio Canova and Kenneth Sæterhagen Paulsen
Series:
Working Paper
Number:
18/2021

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.

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ISSN 1502-8190 (online)

Published 21 December 2021 13:19
Edited 5 June 2023 14:00
Published 21 December 2021 13:19
Edited 5 June 2023 14:00