Multiplying of expected variables

[stepan-a]

Hi,

Dynare applies the conditional expectation to the whole equations, so there is no problem here : if you consider an approximation of order k\geq 2 you will have the covariance.

It would be trickier if instead you wanted to have \mathbb E_t[X_{t+1}]\mathbb E_t[Y_{t+1}] in an equation. Then you would have to resort to auxiliary variables. A similar problem is discussed here

Equity Premium in Jermann 1998 and Otherwise

Dear Jake, I didn’t look the mod file you are referring to or try to understand the issue in your opening post, but clearly here the problem is where you put the conditional expectation. Dynare applies the conditional expectation on the whole equation. So if you write something like: x = 1/m(1); Dynare reads: x_t = \mathbb E\left [\frac{1}{m_{t+1}}\right] while in your case you want: x_t = \frac{1}{\mathbb E\left [m_{t+1}\right]} which is quite different… To do that, or more generally t…

Best,
Stéphane