I’m working on time varying volatility in NK SOE.
This thread is very helpful for me to understand how to implement time varying volatility shock in dynare.
Thanks for jpfeifer and others.
I have two questions:
First, I use very small volatility shock to avoid explosion in IRFs.
Anybody has a code or algorithm for pruning in third order approximation?
Very technical papers would not be helpful for me.
Second, wll IRFs (start from ergodic mean) converge to ergodic mean in the end?
In my case, the IRFs go to around ergodic mean but not “exactly” to the ergodic mean.
I calculate the ergodic mean as follows:
1. simulate the model 500 times with “simult_” from “steady state” under randomly generated volatility shocks
2. in each simulation, simulate 2,096 periods, drop first 2000 periods for burn-in, and take means of variables for left 96 periods.
3. calculate ergodic mean by taking mean of the 500 means.
I found some IRFs in Fernandez-Villaverde et al (2009) and Born-Pfeifer (2011) seem not to converge to ergodic mean.