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 s…

Summing two simultaneous shocks

jpfeifer 30 January 2021 13:11 2

Two shocks simultaneously in a model Stochastic simulations

If you are working with a linearized model (order=1), the IRF to a joint shock is the sum of the individual IRFs. That way you can create any linear combination. If you want to do this more formally, you can use the simult_-function to generate any combination you like (even at higher order). See github.com/JohannesPfeifer/DSGE_mod/blob/master/RBC_news_shock_model/RBC_news_shock_model.mod for an example

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