Shock with zero persistency after one period

Hello all
Is it possible to generate an AR(1) shock in a DSGE model with \rho=0.9 for only period one and set the persistency equal to zero thereafter?
If so, how is it done?

If you want only a one period impulse (+stderr of e) and then zero shock from the second period onwards then you just set rho=0 (no persistency).
If you want a permanent shock then rho=1.
And if you want a kinda fading effect of the persistency then rho you set rho between 0 and 1.
These are just my personal observations for using dynare for some weeks now

@SarvinSharif That is not feasible with stochastic simulations due to the structural break in the process. But to say more, you need to provide more details. Are agents aware of the structural break at time 0 so that you could potentially use perfect foresight?

Thanks for your reply
No agents are not aware and it is unanticipated shock.

Thanks for your prompt reply Ezek.

Ok, but how does the structural change work? Once the change has happened, do agents know that they are in a new regime with 0 persistence?

No they are not aware of that.
Example of the shock is government expenditure during the pandemic. But now I am doubtful if it is correct to set the persistency equal to zero for such shock after the first period.

Indeed. It seems you are rather interested in a one time shock

1 Like