Sufficient Conditions for Finite Objective Functions in DSGE Models with Deterministic and Stochastic Trends
32 Pages Posted: 27 Feb 2008 Last revised: 1 Oct 2009
Date Written: September 22, 9
It is well-established that the presence of deterministic and/or stochastic trends in DSGE models may imply that the agents' objective functions attain infinite values. This is the case even if the subjective discount factor is strictly less than one. Currently, sufficient conditions ensuring finiteness of the objective functions when deterministic and/or stochastic trends are included have not been derived. This paper derives such conditions.
Keywords: Deterministic trends, DSGE models, Error distributions, Moment generating functions, Stochastic trends, Unit-roots
JEL Classification: E10, E30
Suggested Citation: Suggested Citation