Hi all,

I am new to DSGE modelling and Dynare and I am trying to replicate the following paper: “The Effects Of Fiscal Shocks In A New Keynesian Model With Useful Government Spending”, by D’Auria, Francesca, 2015, Macroeconomic Dynamics, Cambridge University Press, vol. 19(6), pages 1380-1399, (see attached).

10.1017@S1365100513000874.pdf (363.8 KB)

I am having some trouble specifying the equilibrium equations (i.e. which are the equations that one should put into dynare). Could someone please help me?

Thank you very much in advance!

Francesco

Hi francesco,

what exactly is the problem you are facing. The equilibrium conditions are specified in ch.3 of the pdf you provided. You use them plus the definition of the shock-process.

Thank you very much for your reply. Just to make sure I got this straight, we have 13 endogenous variables, therefore we need 13 equilibrium equations, right? The equilibrium equations in ch.3 are: (31), (32), (33), (36), (37), (38), (39), (40), (41), (42), (43), (44), (45).

But what about the Taylor rule (23) and the AR(1)'s for government investment and government

consumption, (26) and (27), respectively? Shouldn’t they be included in the equilibrium?

There is indeed something off here. The AR(1)'s are not a problem. They are the *exogenous* processes, so they are not jointly determined with the rest (but nevertheless need to be entered). The weird part is indeed that the Taylor rule is missing. But from what I can see, the equations contain \hat p_t, which is not listed. So there should be 14 equations and 14 variables.

Thank you very much, Professor Pfeifer!