Summing two simultaneous shocks

Hi all,

I am working with a basic new keynesian model with two shocks happening simultaneously (both following AR(1) process).
One is the labor supply shock with a positive realization, the other one is consumer confidence shock, which is with a negative realization.
When I run the model, I get separate impulse responses to these shocks.
However, since the shocks are simultaneous I need to sum them up and multiply them by a scalar that would depict the positive and negative realization. How do I do that?

@jpfeifer So I should be looking at lines 133 through 142?
If I understand correctly, the 1 and -1 values you have assigned to the shock_matrix are because the shocks counteract each other, right?

The 1 and +1 are the respective shock sizes happening. One is a positive shock of 1 unit and the other one a negative one.

Thank you very much for your help!

@jpfeifer I have two more questions:

  1. If instead of using the simult_ function, I decide to sum the individual IRFs manually, how can I point out which shock is positive and which is negative from that summation?
  2. Will any of this change if the shocks are correlated? Should I do the same procedure in that case, or do I need to add a new variable that will show correlation between the shocks?
  1. I don’t understand. A linear combination is aX+bY. For a negative shock, b is negative.
  2. At order=1 this will not change anything, because by construction your shock realizations are perfectly correlated here.

Hi @jpfeifer, I have a quick follow up question. What happens if it is order=2? In particular, how to compute conditional welfare conditioning on the steady-state? What would be the oo_.dr.ghs2 equivalent? Thank you.

I don’t understand the question. oo_.dr.ghs2 only appears at second order.