Dear all,

I am wondering if Dynare can be used to study the news shocks problem.

The basic idea of news shocks is that at time periods one, agents expect there will be an increase in TFP starting four periods later. However, at periods five, the expected increase in TFP do not realize. That is , there is no technology change.

IN a regular RBC model , change the technology process to :

A(t)=p*A(t-1)+a(t-4)+b(t)

a and b are two shocks. at time periods 1, let a=1, this increases agent’s expectation of TFP at periods 5. at periods 5, if b is set to -1, then people’s expectation is not realized. ( the effect of a and b cancels each other ); if b is set to 0, then expectation is fully realized.

In dynare, if I use deterministic simulation simul,

shock;

var a;

periods 1;

values 1;

var b;

periods 5;

values -1;

end;

the problem is both of the shocks a and b are foreseen by agents, so agents will do nothing. ( notice b is supposed to be unanticipated shock)

If I use stoch_simul, then both of the shocks a and b will happen at periods 1, shock b is supposed to happen at perids 5, but I cannot control it.

The following is an example. It is a regular RBC model except for the change in technology process.

// News shocks

var y, c, k, i, h, lamda,theta,e;

varexo a,b;

parameters beta, sigma, rho, alpha, delta, eta,v ;

alpha = 2/3;

rho = 0.95;

beta = 0.98;

delta = 0.05;

eta=1;

sigma=0.25;

v=1.7;

model;

y=c+i;

c^(-sigma)=lamda;

v*eta*(1-h)^(eta-1)=lamda*alpha*exp(theta)*(h^(alpha-1))*(k(-1)^(1-alpha));

beta*lamda(+1)*(exp(theta(+1))*(1-alpha)*(h(+1)^alpha)*(k^(-alpha))+(1-delta))=lamda;
y=exp(theta)*(h^alpha)*(k(-1)^(1-alpha));

k=(1-delta)

*k(-1)+i;*

theta=rhotheta(-1)+e(-4)+b;

theta=rho

e=a;

end;

I know how to deal with shock a, the difficult part is how to get an

unanticipated shock b at period 5.

Thank you in advance.

Regards,

Emma