Stochastic Volatility as in Andreasen (2010)

Dear All,

I am trying to embody stochastic volatility in a small scale-NK model according to method 3 shown in Andreasen (2010) paper:

These are the features I have added to a standard model definition:

In the VAR block:

A Technological process - final
V Technological shock process
sigA Technological volatility

rho_V Persistence of a technology shock
rhosigA Persistence of the standard deviation shock

Exogenous variables:

e_V Technology shock
e_sigA Standard deviation shock

In the model block:

[name=‘12. Technology shock process’]

log(A) = sigA*log(V);

[name=‘13. Technology shock - v’]

log(V) = rho_V*(sigA(-1)/sigA)*log(V(-1)) + e_V ;

[name=‘14. Shock to the standard deviation - sigA’]

log(sigA) = rhosigA*log(sigA(-1)) + e_sigA ;

The attached mod file seems to work.

Do you think what I am doing makes sense?

I also attach the IRFs ralated to the technology and volatility shock.
Is it normal that the latter generates non-smooth IRF?

Is there sample code in one of the dynare repository?

Many thanks in advance.

Any input would be very appreciated.

shock_eV.pdf (52.9 KB)
Shock_sigA.pdf (81.9 KB)

Have a look at
and the Appendix to Born/Pfeifer (2014): Risk Matters: The Real Effects of Volatility Shocks: Comment about the construction of IRFs for models solved at third order.