I am actually new here. I have a question;
Why do we always have an AR(1) process for introducing a Shock in DSGE models?
can we use an AR(2) process?
Of course, we can. Recently I noticed one paper:
Asset Purchases, Limited Asset Markets Participation and Inequality
in
He modelled the bond purchase shock as an AR(2) process. See Footnote 13 and references therein.
Yes, see also
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