Hi everyone

I want to include inflation expectation shock in my model. Ascari et al (2022) have included this shock in their model

Ascari et al 2022.rar (2.8 MB)

in p 13:

Now my question is about how to code this issue in dynare.

Should I add two new endogenous variables (and equations )to the model?

pi_e(+1)

and

eps_pi(+1):

pi(+1)=pi_e(+1)*exp(eps_pi(+1));
eps_pi(+1)=(rho_pi)*(eps_pi)+sigma_pi*u_eps(+1);

var

pi_e

eps_pi

varexo

u_eps

parameters

rho_pi

sigma_pi

Thank you for guiding me in this matter.