Historical decomposition and deterministic shocks

Dynare help (legacy posts)
1

Hello everyone,

I want to make a hystorical decomposition with a combination of stochastic and deterministic shocks. Basically, the idea is that in the period of the historical decomposition I want to compute deterministic changes in one exogenous variable. Then, the historical decomposition will have both, the stochastic shocks and the deterministica change in the exogenous variable.

Does anyone have any idea?

Thank you very much

Fernando Corrales

2

That is currently not feasible with Dynare. One would need to program a Kalman smoother to deal with these exogenous deterministic variables. Dynare’s Kalman smoother does not feature these variables. However, as deterministic shocks are nothing else than news shocks at first order, you may be able to treat the deterministic shocks as regular stochastic shocks that were anticipated from the beginning on and then use the Kalman smoother of Dynare.