Good day all,

I have been running the Dynare example code (both fs2000_nonstationary.mod and fs2000.mod) that come as part of the pre-programmed Dynare example suite (fs2000_nonstationary.mod code presented below). The model is based on the Nason and Cogley (1994) model and the Schorfheide (2000) paper. It is essentially the same as the example given in Prof Eric Sims’ course notes online (Spring 2010) “Money in a Real Business Cycle Model” ( www3.nd.edu/~esims1/money_rbc.pdf ). What I cannot understand is why the Response to a technology shock in the Dynare examples produce IRFs with negative real output responses to the TFP shock – perhaps I am missing something regarding how to interpret the output but I have searched high and low for how it should be interpreted and can find nothing. My best guess is that is has something to do with the options connected to the stoch_simul options and that the IRFs need to take on a certain form which is not the default (but I certainly have no confidence in my own guess here).

The output shown in the Nason and Cogley paper, the Schorfheide paper and Sims’ notes all show what you would expect, a positive real output response. I have attached the Nason and Cogley original the discussion is from the bottom of page S49 with the diagrams on page S50, the discussion is also in Schorfheide (attached) at the bottom of page pg 663 onto pg 664 with the diagram on pg 664. Is someone able to advise how the example code can be specified to generate the results as they are displayed in the reference material?

This is the fs2000_nonstationary.mod code:

/*

- This file is a modified version of ‘fs2000.mod’.
- The difference is that, here, the equations are written in non-stationary form,
- and Dynare automatically does the detrending.
- Also note that “m” and “dA” in ‘fs2000.mod’ are here called “gM” and “gA”

*/

/*

- Copyright © 2004-2010 Dynare Team
- This file is part of Dynare.
- Dynare is free software: you can redistribute it and/or modify
- it under the terms of the GNU General Public License as published by
- the Free Software Foundation, either version 3 of the License, or
- (at your option) any later version.
- Dynare is distributed in the hope that it will be useful,
- but WITHOUT ANY WARRANTY; without even the implied warranty of
- MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the
- GNU General Public License for more details.
- You should have received a copy of the GNU General Public License
- along with Dynare. If not, see http://www.gnu.org/licenses/.

*/

var gM gA;

trend_var(growth_factor=gA) A;

trend_var(growth_factor=gM) M;

var(deflator=A) k c y;

var(deflator=M(-1)/A) P;

var(deflator=M(-1)) W l d;

var R n;

varexo e_a e_m;

parameters alp bet gam mst rho psi del;

alp = 0.33;

bet = 0.99;

gam = 0.003;

mst = 1.011;

rho = 0.7;

psi = 0.787;

del = 0.02;

model;

gA = exp(gam+e_a);

log(gM) = (1-rho)*log(mst) + rho*log(gM(-1))+e_m;

c+k = k(-1)^alp*(A*n)^(1-alp)+(1-del) k(-1);
Pc = M;
P/(c(+1)P(+1))=betP(+1)*(alp

*k^(alp-1)*(A(+1)

*n(+1))^(1-alp)+(1-del))/(c(+2)*P/(1-n))=W;

*P(+2));*

(psi/(1-psi))(c(psi/(1-psi))

R = P*(1-alp)

*k(-1)^alp*A^(1-alp)

*n^(-alp)/W;*

W = l/n;

M-M(-1)+d = l;

1/(cP)=bet

W = l/n;

M-M(-1)+d = l;

1/(c

*R/(c(+1)*n)^(1-alp);

*P(+1));*

y = k(-1)^alp(Ay = k(-1)^alp

end;

initval;

k = 6;

gM = mst;

P = 2.25;

c = 0.45;

W = 4;

R = 1.02;

d = 0.85;

n = 0.19;

l = 0.86;

y = 0.6;

gA = exp(gam);

end;

shocks;

var e_a; stderr 0.014;

var e_m; stderr 0.005;

end;

steady;

check;

stoch_simul;

Thanks in advance

Have a great day

2000 - Schorfheide - Loss function-based evaluation of DSGE models.pdf (254 KB)

1994 - Nason, Cogley - Testing the implications of long-run neutrality for monetary business cycle models.pdf (1.86 MB)