Hi all,

I’m new to dynare and have some questions regarding how it works. So I have a very simple stochastic model below (where each endogenous variable is in logs, i.e. model will be log-linearized):

var c k lab z;

varexo e;

parameters bet the del alp tau rho s;

bet = .987;

the = .357;

del = .012;

alp = .4;

tau = 2;

rho = .99;

s = -.1;

model;

(((exp©^the) * (1-exp(lab))^(1-the))^(1-tau)) / exp© = bet * ((((exp(c(+1))^the) * (1-exp(lab(+1)))^(1-the))^(1-tau)) / exp(c(+1))) *

(( 1 + alp * exp(z(-1)) * exp(k(-1))^(alp-1))* (exp(lab)^(-alp)) - del);

exp© = (the / (1-the)) * (1-alp) * exp(z(-1)) * (exp(k(-1))^alp) * (exp(lab)^(-alp)) * (1-exp(lab));

exp(k) = exp(z(-1)) * exp(k(-1))^alp * exp(lab)^(1-alp) - exp© + (1-del)*exp(k(-1));

z = rho*z(-1) + s*e;

end;

//Steady state values that work: k = 7.29, c=-1.19042, lab=-0.0496051

initval;

k = 7.29;

c = -1.19;

lab = -.0496051;

z = 0;

e = 0;

end;

shocks;

var e;

stderr 1;

end;

steady(solve_algo = 2);

stoch_simul(periods=1000,irf=400);

I don’t understand what periods are (periods = 1000) and how shocks are applied to this model. What is calculated in each period? How is each endogenous variable calculated in each period? What does a 1 standard deviation shock mean?

I appreciate your help!