SOLVING THE UNIT ROOT PROBLEM IN MODELS WITH AN EXOGENOUS WORLD MARKET INTEREST RATE

Manoj Atolia () and Edward F. Buffie

Macroeconomic Dynamics, 2011, vol. 15, issue 5, 681-712

Abstract: The standard model of the small open economy is burdened 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.

Date: 2011
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