Solving the Unit Root Problem in Models With an Exogenous World Market Interest Rate
55 Pages Posted: 16 Oct 2008 Last revised: 24 Nov 2008
Date Written: November 1, 2008
The standard model of the small open economy is saddled with a unit root that greatly complicates numerical computation of the global saddle path. In this paper we solve the unit root problem by developing a set of innovative forward-shooting algorithms. Exploiting the fact that the algorithms are mechanical and model-free, we have placed canned, fully automated programs in the public domain. The programs do not require any substantive human input. The user's only responsibility is to type in the equations of the model correctly.
Keywords: Unit root, global saddle path
JEL Classification: F41, C61, C63
Suggested Citation: Suggested Citation