Calculate the long-run equilibrium solution for the following model

(5.34)

Applying first steps (1)–(3) above, the static solution would be given by

(5.35)

Rearranging (5.35) to bring y to the LHS

(5.36)

and finally, dividing through by β5

(5.37)

Equation (5.37) is the long-run static solution to equation (5.34). Note that this equation does not feature x3

, since the only term which contained x3 was in first differenced form, so that x3 does not influence the long-run equilibrium value of y.