Aggregate shocks and asymmetric responses

Dynare help (legacy posts)
1

Hello,

I want to check if the following is a feature of models with aggregate and correlated shocks (or a bug, coding error, etc.).

I have a symmetric two-country economy with shocks to technology as the only source of disturbances.
If the shocks to each country’s technology are uncorrelated, responses of all variables are symmetric in the scenario of aggregate shocks.

Once the shocks become correlated, responses of all variables become asymmetric, albeit the shocks are symmetric still.
The responses depend on the ordering of the shocks in the --varexo-- block.

Thanks,
dynare_usr

2

That is a feature, because shocks need to be orthogonalized (i.e. the correlation needs to be assigned to one shock) and Dynare uses a Cholesky decomposition for this, as documented in the manual

3

Thank you for your prompt reply.