Let’s suppose that I have a model with several shocks and a standard Taylor rule, and I would like to simulate the model (or get IRFs) in a setting where the nominal interest rate does not react to one particular shock in my model. This way, I can analyze the effects of this particular shock under fixed interest rates while ensuring that the Taylor principle is satisfied (because monetary policy reacts to the rest of shocks).
An example of this is Nakamura and Steinsson 2014. They are interested on studying the government spending multiplier under a Taylor rule, fixed real rates, and fixed nominal rates.
I wonder if one can do this in Dynare without the need of log-linearizing the model by hand, i.e. just working in levels as usual, and with small changes to the code that one would use with a standard Taylor rule.
What the authors of that paper do (Appendix A) is to log-linearize, by hand, impose this restrictions, find the policy functions and get the interest rate rule that satisfies this (where the particular shock would enter on the taylor rule in a linear way, undoing the effect). I wonder if this could directly be done in Dynare, either:
- By somehow imposing this restriction on the policy function in such a way that Dynare takes this restriction into account when implementing the method of undetermined coefficients.
- Using macros.
- Or taking advantage of the zero lower bound literature, perhaps with the use of news shocks?
I have a different model from this paper, which is simpler and national, but the same principle applies.