Risk matter comments EMAS steady state

Hello Johannes,

I have seen Table F2 in your Dynare version of paper “Risk matter comments” but not in AER version. I could not understand, how to compare and interpret Deterministic SS and EMAS SS. I have open economy non-linear models, How to interpret between these two. What I need to look at for any comparison to be meaningful.?


The deterministic steady state abstracts from any uncertainty. The stochastic steady state/EMAS factors in that shocks can happen (although they do not actually happen). That way, the latter accounts for some precautionary behavior/curvature in the policy functions. In the table you are referring to, this can be seen in the debt distribution.

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Okay, one things is that adjustment cost not zero with EMAS. This is how it impacts.
I am using closing devices of SGU 2003 with two more closing devices from Thomas Lubik (2007) where he used risk premium in multiplicative form. I am experimenting using NLMA (Lan/Meyer-Gohde 2013).

All closing devices matches with emerging countries data except PAC model and Exogenous debt elastic with multiplicative form ( call it as EDEIR(m). For these two devices produced volatility of consumption around 53 and 92 respectively and high persistence in consumption in TBY(Unit root). I am trying to understand intuition.

Now, in these two models, (1) difference between risky steady state and deterministic is very large while in others model difference is small (2) In others models Total Risk Adj(anticipation effects of future shocks) is very small(approx. 100 times less) compare to Total Amp.(impact of realized shocks). We have stationary TFP shocks only.