I am doing a study on the effects of an expected future change in the monetary policy regime. I am inspired by this paper “Expected Regime Change: Transition Toward Nominal Exchange Rate Stability”. I’ve been trying to replicate the same model for my economy. Currently I have a problem to integrate information shocks (the construction of the policy indicator \regime_t **2.6 Monetary Policy Rule in Transition Period** starting at page 11) since I’m new to Dynare, I don’t master some tricks.

Can anyone help me please, I’ve been stuck on it for three days?

SSRN-id2274682.pdf (548.3 KB)

You should be able to simply code equation 2.28 in Dynare.

Hello Pr, thank you very much for the answer,

in fact I managed to code equation 2.28 on dynare but my concern is how to write equation 2.29. In my dynare code (v_i,t) are exogenous variables.

Thank you in advance.

Use the `simult_`

-function. See e.g. Consecutive and identical shocks

Thanks again for the answer. I’ll try it on.

Hi, Professor, it’s me again, Supergus. I’ve taken your suggestion on board. I gave you the data and the mod.file so you can see what I did. I tried to simulate a change productivity shock in the model of regime switch in 5 periods but I can’t see the difference in the results, I don’t know if I did it right. Can you help me please.

Thanks again.

samba_transition.mod (10.3 KB) DATAS.mat (2.6 KB)

I am pretty sure the timing structure implementation of (2.28) is not correct, because now there is no anticipation and everything happens in one period. My guess is that is must be a news shock, but the original paper is confusing in this regard at first sight.

Professor Pfeifer, thank you for the answer. So I’m going to have to abandon this approach. But can you tell me a way to initiate a shock that would allow for a change in the reaction function of the monetary authority at a given date. I would like to be able to capture the impact on the economy of a change in the exchange rate regime: From a fixed exchange rate regime to a flexible exchange rate regime with inflation targeting.

Thank you in advance.

Have you considered asking the authors for their codes?

Thanks for the answer Professor, I tried to ask them some advice on how to integrate information shocks but they have not yet reacted.

If you have another solution i’m a taker.

Thank you in advance.

Thank you, I’ll try to use news shocks!

Hi Professor, sorry but I don’t really know how news shocks can solve my problem. I tried a few combinations, but I didn’t get anywhere. Maybe it’s because I don’t have a lot of experience in dynare yet.

What I way saying is that in the original paper the timing looks a bit strange and I have the impression that the author is trying to introduce an indicator that specifies the regime and then uses anticipated shocks, i.e. news shocks to make that regime hold for various periods. I am not entirely sure about this, though, because I do not find the paper clear.

Thank you very much professor. I’ll then pursuie my reseach in other articles.