Predetermined variable


In my model the predetermined variable is employment (which I denote as n1), there is no capital or investment (there is instead hiring which I denote as h)

I write my equations as suggested in the guide (I use n1 to denote n1_t+1 and n1(-1) to denote n1_t).

However, I noticed that n1 reacts immediately to shocks (it’s reaction should be zero in the first period).

I do not know what is wrong. I think it may have to do with one equation where I have n1_t+1, n1_t and n1_t+2 which I denote respectively as n1, n1(-1) and n1(+1).

The relevant equations are A7 and A9 (which are described in the appendix of the SWP file in attachment).

Can anyone help me? What am I doing wrong?
Joao (18.6 KB)

The confusion is the following: once you adopt Dynare timing convention
n1_t is the level of employment that firms commit to at period t after having observed shocks at the beginning of period t. It is therefore normal that n1_t be affected by shocks of period t

In turn, the level of emplyment actually used in production is n1_{t-1} and n1_{t-1} isn’t affected by shocks at period t.

NB: I couldn’t look at your paper as I don’t have Scientific Word, in the future, please send a PDF file