Exogenous variables
Posted: Fri Mar 22, 2013 4:07 pmI'm sorry to bother you all with what should be a silly question. I have looked at the reference manual and the user guide, but I still don't exactly understand something.
When I have an exogenous variable to my model, I intuitively modelled it as varexo. But as I looked at the manual, I found (http://www.dynare.org/manual/index_18.html):
Does that mean that if I have an exogenous variable (in the economic sense) that has a steady state value different than zero I should use it as an endogenous variable in my .mod file? Thanks in advance.
When I have an exogenous variable to my model, I intuitively modelled it as varexo. But as I looked at the manual, I found (http://www.dynare.org/manual/index_18.html):
In a stochastic framework, the exogenous variables take random values in each period. In Dynare, these random values follow a normal distribution with zero mean, but it belongs to the user to specify the variability of these shocks. The non-zero elements of the matrix of variance-covariance of the shocks can be entered with the shocks command. Or, the entire matrix can be direclty entered with Sigma_e (this use is however deprecated).
If the variance of an exogenous variable is set to zero, this variable will appear in the report on policy and transition functions, but isn’t used in the computation of moments and of Impulse Response Functions. Setting a variance to zero is an easy way of removing an exogenous shock.
Does that mean that if I have an exogenous variable (in the economic sense) that has a steady state value different than zero I should use it as an endogenous variable in my .mod file? Thanks in advance.