Questions about the Forward Guidance Puzzle Paper

General DSGE Modeling
1

Hello everyone,

I am not sure if I understand the Figure 6 in the forward guidance puzzle by Del Negro et al (2017, version 9, but older versions also work) correctly. I guess one way to produce these impulse responses is to modify the sample code by professor Pfeifer (RBC_news_shock_model.mod).

  1. I think that the zero quarters ahead panel of the figure should correspond to the unexpected policy shock, which is the \epsilon^R_t in their equation (6). Is that right?

  2. The four and eight quarters ahead panels should correspond to the anticipated policy shock, which is the \sum^K_{k=1} \epsilon^R_{k,t-k} in their equation with K=4 or 8. However, I am not sure if they are the responses to the eps_z_news shock or the “pure” news shock in the professor Pfeifer’s code.

Many thanks for any suggestions, hints or helps.

2

Can provide a link to the paper version you are referencing. The published version at https://www.journals.uchicago.edu/doi/epdf/10.1086/724214 has a different figure numbering.

3

Dear Professor,

Thanks for your reply. It appears that the form does not allow me to post the link to the paper version I mentioned (I don’t know why). The figure I mentioned now appears Figure 2 in the published paper. Sorry for the confusion.

4

Yes, those are anticipated shocks. You can either use news shocks or perfect foresight simulations. In any case, the online appendix explains what they did.