Some questions on policy setting in the model

Dear Professor Pfeifer,

I’ve got some problems on the policy design in the DSGE model. Would you please give any advice? Thank you very much.

  1. I set a exogenous policy variable z_t in the model and its steady state is 1. I could easily get irf picture of some shock (e.g. technology shock) to the model when I just set z_t=1 (which means no policy improvement). But, If I want to get irf picture of some shock under the same time z_t is decreasing from 1 to 0, how could I realize this?

  2. I read in some paper that the policy variable z_t is set as:
    \log \left( \frac{{{z}_{t}}}{{\bar{z}}} \right)=\rho \log \left( \frac{{{z}_{t-1}}}{{\bar{z}}} \right)-\left( 1-\rho \right)\phi \log \left( \frac{{{y}_{t}}}{{\bar{y}}} \right) in which y represents the output. The value of parameter \rho means the persistence of the policy. How is this persistence related to the real time? For example, if \rho=0.5, how many quarters is the persistence of the policy?

  3. If I want to set \log \left( \frac{{{z}_{t}}}{{\bar{z}}} \right)=\rho \log \left( \frac{{{z}_{t-1}}}{{\bar{z}}} \right)-\left( 1-\rho \right)\phi \log \left( \frac{{{y}_{t}}}{{\bar{y}}} \right) when output is positively deviate its steady state( \frac{{{y}_{t}}}{{\bar{y}}}>1) and z_t=1 when output is negatively deviate its steady state( \frac{{{y}_{t}}}{{\bar{y}}}<1), how should I realize it?

Thanks again for your time on this.

  1. Are you doing stochastic simulations? Then you can use the simult_-function to run joint shocks.
  2. Full geometric decay always takes forever. But people often use the half-life. See e.g. Persistency of IRFs: Definition - #15 by jpfeifer
  3. That seems like an occasionally binding constraint you could implement with Occbin.

Dear Professor Pfeifer,

  1. Yes, I’m doing the stochastic simulation. How should I use “simult_-function to run joint shocks” ? Would you please give any example?

  2. How should I realize this kind of occasionally binding constraint in Dynare? Is there any examples?

As always, thank you very much for your time on this.

  1. See e.g. Two shocks simultaneously in a model - #2 by jpfeifer
  2. See e.g. examples/Occbin_example.mod · master · Dynare / dynare · GitLab