Dear dynare users,
I do not fully understand how news shocks affect endogenous variables before materialize.
Imagine that I have a news shock observed 4 periods before realizing. When does this shock enter Kalman filter?.
As far as I understand, the kalman filter generates a projection of the model variables at t given the state variables at t-1 and the shocks at t. Nevertheless, this news shock is realized at time t-4.
Therefore, is this shock entering in the kalman filter in time t-4?
Could someone share any paper where this is explained?
Thanks in advance for any help!
News shocks result in an augmented state vector. So once the shock is known, there is a state variable keeping track of it until it finally materializes.
First, thank you very much for your quick answer professor Pfeifer.
Just to clarify, the shock is known in t-4 and therefore it enters in the kalman filter in time t-4 and after that there is an state variable (that i guess is constructed through auxiliary variables) in each t-3, t-2, t-1 and t. Is that right?
For example, in this case:
news4 enters in kalman filter at time t, aux_1 enters at time t-1 … aux_4 enters at time t-4
Yes, exactly. Dynare does that part automatically.