Hi,
Maybe it has already been answered but I am wondering about the best way to find the stochastic steady state when using 3rd order approximation.
I usually simulate the model without shocks for 2000 periods and take the end point as the stochastic steady state.
What I tried last time was to further simulate the model with shocks for large number of periods and take the mean. I came to the realization that two ‘stochastic states’ can actually be different.
Note that I tried increasing the number of periods but I still get some difference which does not vanish away as I increase the number of periods.
I have come across a paper which proposes the following,
- Simulate the model without shocks 2000 periods, take the end point
- Simulate the model with shocks for 100 periods, take the mean
- Repeat (2) for 1000 times and take the mean of means
My prior would have been that all those methods should lead to reasonably close numbers but in practice my experience is that they can substantially differ. What do you suggest?