Temporary shock with ZLB constraint

Perfect foresight simulations
1

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)

2

I cannot replicate the problem in Dynare 5.2.

3

Thank you Professor Pfeifer.

I guess the problem was due to using the older version of Dynare.