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Symbolic stationarization of dynamic equilibrium models

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  • Canova, Fabio
  • Sæterhagen Paulsen, Kenneth

Abstract

Dynamic equilibrium models are specified to track persistent time series. Thus, unit roots are typically introduced as exogenous driving forces and the optimality conditions adjusted to produce a stationary solution. This adjustment step requires tedious algebra and often leads to algebraic mistakes, especially in complicated models. We propose an algorithm employing differentiation rules that simplifies the step of rendering non-stationary models stationary. It is easy to implement and works when trends are stochastic or deterministic, exogenous or endogenously determined. Three examples illustrate the mechanics and the properties of the approach. A comparison with existing methods is provided (97 words).

Suggested Citation

  • Canova, Fabio & Sæterhagen Paulsen, Kenneth, 2023. "Symbolic stationarization of dynamic equilibrium models," Journal of Economic Dynamics and Control, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:dyncon:v:154:y:2023:i:c:s0165188923001161
    DOI: 10.1016/j.jedc.2023.104710
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