Question regarding timing notation in Dynare

[Suttungr]

Hi! I have the following question:

It concerns stochastically simulating a standard linear 3 equation NK model which I would like to extend with an endogenous switching mechanism for expectations (which is highly nonlinear, hence I would simulate at a higher order) where a share of agents switches between rational expectations and some non-rational (simplistic) expectations (e.g. simply assuming past period’s realisation) depending on which forecasting heuristic has a smaller forecast error.

In particular, I am interested in calculating the squared forecast error between rational expectations and the realisation:

FEt=(Et-1πt – πt)^2

My problem is how could this line be written in the syntax of Dynare wrt the timing notation, if I want the rational expectations, i.e. “π(+1)”, but from the period before?

Best,
Daniel

[jpfeifer]

See e.g.

End of period convention and decision lag

Actually, from what you describe, I think the law of motion for n should be n_t =(1-rho_{t})n_{t-1}+m_{t} You inherit employment n_{t-1} from the previous period, some matches dissolve based on rho_t and you get new matches m_t. This is similar to the law of motion for capital. Alternatively, you could shift the whole equation by 1 period: n_{t+1} =(1-rho_{t})n_{t}+m_{t} and use predetermined_variables n Regarding the limited information assumption, you need to change the information set of t…