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ricardomayerb edited A simple model.tex
over 9 years ago
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\begin{align}
\label{foo}
a_{t} & = \mu_{a} + \zeta_{a,t} + \sigma_{a} w_{a,t} , \quad w_{\zeta_a,t+1} \overset{iid}{\sim} N(0,1)
\label{foo} \\
\zeta_{a,t} & = \rho_a \zeta_{a,t-1} + \sigma_{\zeta_a} w_{\zeta_a, t} , \quad w_{a,t} \overset{iid}{\sim} N(0,1)
\label{bar} \end{align}
This is the same processes for productivity specified in \cite{Edge2007}, you can obtain their system of equations by defining \footnote{I've chosen this formulation because make comparisons to \cite{Edge2007} easy. An alternative formulation that is more natural in a state space formulation, and that allows easily to consider correlation between tfp}