Hello everyone!
I want to simulate the dynamic path of economic recovery to the initial steady state after a disaster occurs. Everyone knows that a disaster will happen, but they don’t know when. When a one-time disaster occurs, the variable values in the model will suddenly deviate from the steady state, and we assume that the disaster has no lasting effects, so the economy will gradually recover to the initial steady state. This sounds similar to impulse response, but I’m not sure if it’s the same. Should I use stochastic simulation or deterministic simulation?
Thanks in advance!
Here are my two current attempts.
Attempt1:
//define endogenous variable
var y c k i
//define exogenous variable
Varexo e
//define parameters
parameters
......;
//equilibrium conditions
Model;
model;
y = k^alpha * (1-z);
k(+1) = (1 - delta) * k + i;
c + i = y;
c = beta * (y - delta * k);
end;
initval;
k = 10;
c = 2;
i = 0.75 * c;
z = 0;
end;
shocks;
var z = 0.5^2;
end;
stoch_simul(order=3, periods=1000, irf=40,nograph);
Attempt 2:
//define endogenous variable
var y c k i
//define exogenous variable
Varexo e
//define parameters
parameters
......;
//equilibrium conditions
Model;
model;
y = k^alpha * (1-z);
k(+1) = (1 - delta) * k + i;
c + i = y;
c = beta * (y - delta * k);
end;
initval;
k = 10;
c = 2;
i = 0.75 * c;
z = 0;
end;
shocks;
var z;
periods 1;
values 0.5;
end;
perfect_foresight_setup(periods = 30);
perfect_foresight_solver;