Discrete choice model using Dynare?

General DSGE Modeling
1

Hi all,

I wonder whether we can solve a discrete choice model using dynare.

Suppose we start with a standard NK model with Calvo pricing. I add firm specific fixed cost and firm specific shocks to the individual intermediate firms. The firm’s decision will be produce or not; if produce, choose the optimal rule.

The fixed cost will happen if produce. The firm will compare the profit of produce with 0. Would this be possible using dynare? I’ve used dynare for perturbation so far. Thanks.

Any related algorithm or possible solution methods are welcome.

2

It sounds as if that model has a fundamental discontinuity. You cannot solve this with perturbation. In a perfect foresight context, you could do this. In a stochastic framework, the stochastic extended path might work. But that features is still quite experimental.

3

thank you very much