I am trying to produce conditional forecasts from a DSGE model with financial frictions as in Gerali et al.(2010) for Pakistan economy.
In doing so, I am setting two-period conditional forecast path for inflation while keeping interest rate shock as controlled exogenous variable.
I have a total of 12 observable variables including 3 foreign (US) variables i.e. interest rate, inflation, and output. Can I use Federal Funds Rate shock as a controlled exogenous variable for two variables i.e. US inflation, and output? Moreover, it is possible to specify conditional forecast paths of different length, for example, 8-period path for US interest rate and inflation and 2-period path for domestic inflation.
- You need as many controlled shocks as variables you want to control. So you cannot use the FFR to control two variables.
- Different lengths of forecast paths are only possible in the unstable Dynare version (4.6) See https://git.dynare.org/Dynare/dynare/commit/3ad654b9b8fcf0028aabda93bb747d5f0361555b
Thanks a lot Professor!
I have installed the dynare 4.6 (unstable) and tried providing paths for two endogenous variables, but it’s throwing the following error.
Warning: Matrix is singular to working precision.
In mcforecast3 (line 60)
In imcforecast (line 252)
In FPAS31_est4_forecasting.driver (line 713)
In dynare (line 300)
Could you please suggest a way out
We would need to see the file