Questions on impulse responses with partcular shocks


I’m wondering if we can do impulse response analysis with a partcular shock, i.e, a non-i.i.d shock;


Hi Glenn

A stochastic shock with non zero mean and/or a skewed distribution can be iid.

You can implement a non zero mean shock in Dynare. The problem is that this will eventually shift the steady state of the model. Dynare will approximate the model around the new steady state, ie after the shock. So the approximation may not be good if the mean is too far from zero. You can find the algebra of this in michel’s slides [pdf]. You have to declare this kind of shock with the command varexo_det in the preamble of your mod file (see the manual and I think that you can also find some posts on the forum about this issue).

There is nothing in Dynare to handle the skewness thing. Dynare assumes that the shocks are gaussian. But nothing prevents you from considering arbitrary nonlinear transformations of the (gaussian) shocks.