Hi,

I am simulating a log-linearized model and I would like to clarify how to specify a 1% shock.

Should a 1% shock be specified as stderr 0.01 OR stderr 1?

Please let me know. Thanks.

It does not matter as long as you interpret the results correctly. If you specify a 1% shock as 0.01 then if you get a letâ€™s say a standard deviation of y of 0.015 this means 1.5%. In contrast, if you specify a 1% shock as 1 then everything is just scaled up by 100 and now a standard deviation of y of 1.5 means 1.5%. (Usually the latter is better for numerical accuracy and readability)

Hi jpfeifer,

Thank you so much for replying and thanks for this information. Have a good day.