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

  • Manoj Atolia (a1) and Edward F. Buffie (a2)
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.

Copyright
Corresponding author
Address correspondence to: Manoj Atolia, Department of Economics, Florida State University, Room 278 BEL, 113 Collegiate Loop, PO Box 3062180, Tallahassee, FL 32306-2180, USA; e-mail: matolia@fsu.edu.
References
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Atolia Manoj and Buffie Edward F. (2009) Smart forward shooting. Computational Economics 33, 130.
Atolia Manoj and Buffie Edward F. (in press) Reverse shooting made easy: Automating the search for the global nonlinear saddle path. Computational Economics.
Atolia Manoj, Chatterjee Santanu, and Turnovsky Stephen J. (2008) Growth and Inequality: Dependence on the Time Path of Productivity Increases (and Other Structural Changes). Mimeo, Florida State University.
Caselli Francesco and Ventura Jaume (2000) A representative consumer theory of distribution. American Economic Review 90, 909926.
Rebelo Sergio and Vegh Carlos (1995) Real effects of exchange-rate-based stabilization: An analysis of competing theories. NBER Macroeconomics Annual 1995, 125174.
Riascos Alvaro and Vegh Carlos (2003) Procyclical Government Spending in Developing Countries: The Role of Capital Market Imperfections. Mimeo, University of Maryland.
Schmitt-Grohe Stephanie and Uribe Martin (2003) Closing small open economy models. Journal of International Economics 61, 163185.
Turnovsky Stephen J. (1997) International Macroeconomic Dynamics. Cambridge, MA: MIT Press.
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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
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