Partial equilibrium vs General equilibrium

General DSGE Modeling
1

Dear all,

I am working with a DSGE model that includes a housing sector. I would like to compute impulse response functions to a monetary policy shock under a partial equilibrium setup, where the housing sector reacts to the shock but is not affected by GE effects.

What is the best way to implement this type of “partial equilibrium” analysis in Dynare?

  1. Using somehow a conditional simulation or paths
  2. Fixing prices at steady state levels (but then the model becomes unstable)
  3. Removing market clearing conditions and fixing prices
  4. Any other suggestion :slight_smile:

Thank you very much in advance!

2

Usually, you have to go for option 3 because simply fixing prices will cause stability problems.