Dear Professor Pfeifer,

I want to add a shock on capital stock. I search the forum and find your code of RBC_capitalstock_shock.mod which makes a typical example. I just want to make sure that:

(1) In the notation of the code, you said that “the timing for k in all other equations changes to being contemporaneous” and the the law of motion for capital is written as

exp(k) = exp(-eps_cap)*(exp(invest(-1))+(1-delta)*exp(k(-1)));

So in other equations which include variable “invest”, I sould substitue it by

exp(invest)=exp(k(+1))/exp(-eps_cap(+1))-(1-delta)*exp(k);

and calculate derivative with respect to k(+1). Is this correct ?

(2) In your code, eps_cap is exogenous variable. I wonder if I could use the code as follows:

exp(k) = exp(eps_k)*(exp(invest(-1))+(1-delta)*exp(k(-1)));

and

exp(eps_k) = (1 - rhokUU) * 1 + rhokUU * exp(eps_k(-1)) + e_k;

in which eps_k is endogenous variable and e_k is the exogenous one. Is this correct ?

The bayesian estimation results on the two types of introducing capital shock above are quite different and I have no idea about the reason.

Thank you for your time, Professor.

Best regards