Carlson&Osler (2005) - changing stready state

Dear All,

In my model (which is a very simple linear model ) an unexpected shock may hit the economy which makes the steady state shift. I would like to plot the adjustment from the original steady state to the new one. I am not sure if Dynare can do this for me. Any suggestions?

Thanks in advance, Andras

in stochastic models dynare solves using perturbation methods so you cannot have shocks that alter the Steady state

for deterministic models you can use dynare to solve for the path from one SS to the new one

Thanks for the answer!

The problem is that in a determinsitic model the shock that alters the steady state would be seen in advance by the agents, if I understand it right. And I think it would change the whole thing as I need the effect of an unexpected shock to the exchange rate. Do you have any ideas how I could handle this problem, maybe with some other software?

I understand that Dynare has to use numerical methods in order to solve complicated nonlinear difference equations but my model is totally linear which shuld make things easier, I guess. Best, Andras

if the model is deterministic you can tell Dynare to start in the SS and in the 1st period to give a transitory shock lasting 1 period. This would be an unanticipated shock.