RBC Model with negative transitory technology shock

Stochastic simulations
1

Hello everyone,

I am trying to simulate a standard RBC model and I am trying to include a negative transitory shock to productivity, to see the reaction of consumption, capital intensity etc. The way I modeled shocks before, with Periods defining a certain time-frame and values setting the varaible below its steady state, however now doenst work, since my productivity variable u is not exogenous and follows an AR-1 process.

Can anyone point me in the right direction of how to model this? Any help would be greatly appreciated, and I want to thank everyone on this forum for their great ideas and help!

Have a nice day!

RBC.mod (938 Bytes)

2

Simply use

log(u) = rho*log(u(-1))-e_u;

In any case, at order=1 the IRFs are linear, i.e. the IRF to a positive shock is just minus the IRF to a negative one.

3

Thank you Professor Pfeifer, this is such an obvious way of implementing it that I am pretty ashamed of myself that I did not think of it myself. Anyway, I greatly appreciate your help, thanks again!