Dynare output with multiple shocks

Dear Prof. Pfeifer,

I would like to compute the moments of model variables following multiple shocks occurring simultaneously. I have extended an existing model (with one shock) to include 3 other exogenous shocks. Please see the cycle_irf.mod file.

My questions are regarding the Dynare output. Is the output produced for all four shocks occurring simultaneously? How do I vary the output to change the number of shocks occurring?
I find that when I alter the standard deviation of one or more shocks, or comment out a shock, the policy functions do not change which I don’t understand.

Also, I would appreciate if you could provide me with a resource on implementing multiple shocks in Dynare and understanding the output.

Thanks in advanceFiscal_shocks_2nd_moments.zip (1.1 MB)

What do you mean with

That suggests that the shocks are perfectly correlated.

Policy functions at first order will not change due to certainty equivalence.

Thanks Prof. Pfeifer. With regards to the shocks, I want to see what happens when fluctuations are driven by shocks to multiple exogenous processes to determine whether the model is closer to data moments when these shocks are introduced as opposed to when there is only one active shock.

Is there a way I can achieve this?

I still don’t get it. Whenever you have define multiple shocks with non-zero standard deviation, the moments reported in Dynare will take into account all the defined shocks.

Dear Prof. Pfeifer,

Many thanks for your help. I have tried to implement what I had in mind based on older posts where you advised on how to introduce multiple shocks.

I have introduced an ‘epscommon’ shock which allows for a shock to all exogenous variables.
Please see cycle_irf. mod in the attached folder. Could you please advice on whether my modelling of epscommon reflects the relative sizes of the variances of the individual exogenous shocks?

It seems there might be an issue here because when I run second_moments.m (this can be done by running the run.m file), which derives the second moments of model variables following the shock, the standard deviations are extremely large - I introduce the standard deviation of epscommon on line 42 of second_moments.m. Could you please help identify what the problem is?

Many thanks in advance.

Second_moments_forum.zip (1.9 MB)

You still did not answer my question from above. Are you thinking about perfectly correlated shocks?

No, I don’t want the shocks to be perfectly correlated. What I am trying to do is to incorporate both fiscal policy and technology shocks as sources of economic fluctuations, as opposed to just a technology shock, as in an existing paper.

In that case, from my understanding from reading another paper which also aims to also incorporate fiscal shocks, the impact of the different shocks on aggregate fluctuations should be reflective of the relative sizes of the individual shocks - given I understand their methodology correctly.

This is what I am trying to implement so I can calculate the second moments of model variables. Could you please help with this or advise as to whether I am misunderstanding something?

I still don’t get the problem. https://github.com/JohannesPfeifer/DSGE_mod/blob/master/RBC_baseline/RBC_baseline.mod is a simple example with two shocks.

Thanks. Could I ask some follow up questions:

  1. Do you only define a common shock when you have multiple shocks and would like to generate impluse responses which incorporate all shocks as you suggest here with ‘epscommon’: http://www.dynare.org/phpBB3/viewtopic.php?f=1&t=2515
  2. What are the usual reasons for having multiple shocks in a dsge model?