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Dynare Userguide

# Dynare Userguide

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01/29/2012

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Let’s illustrate this transformation on output, and leave the transformations

of the remaining equations as an exercise, if you wish (Nason and Cogley

(1994) includes more details on the transformations of each equation). We

stationarize output by dividing its real variables (except for labor) by At. We

deﬁne Yt to equal Yt/At and Kt as Kt/At. NOTE! Recall from section 3.5 in

chapter 3), that in Dynare variables take the time subscript of the period in

which they are decided (in the case of the capital stock, today’s capital stock

is a result of yesterday’s decision). Thus, in the output equation, we should

actually work with Kt1 = Kt1/At1. The resulting equation made up of

stationary variables is

Yt

At

=

Kt1
At1

α

A1α

t N1α

t A1

t Aα

t1

Yt = Kα

t1N1α
t

At
At1

α

= Kα

t1N1α

t exp(α(γ + A,t))

where we go from the second to the third line by taking the exponential of

both sides of the equation of motion of technology.

The above is the equation we retain for the .mod ﬁle of Dynare into which

we enter:

y=k(-1)^alp*n^(1-alp)*exp(-alp*(gam+e a))

The other equations are entered into the .mod ﬁle after transforming them

in exactly the same way as the one above. A ﬁnal transformation to consider,

that turns out to be useful since we often deal with the growth rate of tech-

nology, is to deﬁne

dA = exp(gam+e a)

by simply taking the exponential of both sides of the stochastic process of

technology deﬁned in the model setup above.

68 CHAPTER 6. ESTIMATING DSGE MODELS - ADVANCED TOPICS

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