Dynare forums

Hi

We have a 2-country model where small economy shocks should have no influence on large economy variables. When dynare prints the DSGE and BVARDSGE irfs for small economy shocks, as expected, large economy variables are absent. In the results mat file, the DSGE irfs for small economy shocks are zero vectors. However, the BVARDSGE irf vectors have seemingly nonsensical, non-zero elements. We're trying to make sense of what these elements are.

Any Ideas??

Cheers,
Sean

In the auxiliary VAR model, there is no structural restrictions preventing a shock from affecting any endogenous variables.

Your model is probably a case where DSGEVAR analysis is not too meaningful.

Best

Michel