Dererministic Shock

Dynare help (legacy posts)
1

Hi guys, quick question.

I have a deterministic model and I have to simulate a specific path for the exogenous variables. I can do that by simulating a sequence of permanent shocks using as a starting value the outcome of the previous simulation, but then the model is not solved under perfect foresight since at date t agents expect the exogenous variable to be at level t forever, while at t+1 it will increase again. Is there a way to specify a path for the exogenous variable so that agents are not constantly surprised every period?

Thanks

2

No, if the shock is an exogenous variable agents will always be ‘surprised’. Unless you specify the shock as a news shock. In that case agents are not surprised when the shock materializes but when the shock is announced.

3

Thanks rteconomics. How do I specify a news shock?

4

TWell, the easiest way is this:

in this way the shock is ‘announced’ at (t-1) but materializes at time t. Agents react at (t-1) and not at t.