Hello,
I’m trying to run a perfect foresight simulation with a New Keynesian model.
I want to give a negative demand shock (eps_z) that persists from period 1 to 3 (-0.5 -0.3 -0.18), driving the economy to the ZLB. From period 4 and onward, eps_z = 0.
Is there a way to run such simulation through the perfect foresight solver?
If I specify the shock process in the model block and the shocks block as below, the lmmcp option for the perfect foresight solver does not seem to work.
model;
...
z = eps_z;
end;
steady;
shocks;
var eps_z;
periods 1 2 3;
values -0.5 -0.3 -0.18;
end;
Below is the path of the nominal interest rate
>> i'
ans =
-0.0402 -0.0215 -0.0089 0 0 0 0 0 0 0 0
If I specify the demand shock process using AR(1) process, the lmmcp option seems to work well.
Thank you in advance!
lq_2_closed_irf_dtm.mod (1.0 KB)