Conditional Forecast Paths and Controlled Exog. Variables


#1

Dear Professors,
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.


#2
  1. You need as many controlled shocks as variables you want to control. So you cannot use the FFR to control two variables.
  2. Different lengths of forecast paths are only possible in the unstable Dynare version (4.6) See https://git.dynare.org/Dynare/dynare/commit/3ad654b9b8fcf0028aabda93bb747d5f0361555b

#3

Thanks a lot Professor!


#4

Dear 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

Regards,

Mohsin Waheed


#5

We would need to see the file