Permanent Shock to a Parameter

[Daniel Bendel]

Hello everyone,

I have a model with a government, which setting taxes following a simple rule. These taxes have a steady state value. I now what to do the following exercise:

I want to simulate the reactions of the model if I permanently increase the steady state value of these taxes: Say, in period 1 to 10 it should have the old steady state tax value and thereafter a new higher steady state tax value.

How can I do it whit dynare??

Thank you all for your help!

Daniel

[Daniel Bendel]

Has noone an idea??

[federico]

stochastic or deterministic set up?

[Daniel Bendel]

I have got the solution:

1. You have to specify the parameter as a variable: e.g.: alpha
2. Give it a steady state value as the start value: e.g.: alpha_SS = 0.3;
3. Add a exogenous variable to the parameter: e.g.: alpha = alpha_SS + eps_alpha;
4. Then do a shock: e.g:

Code: Select all

shocks;
 var eps_alpha;
 periods 0:15 15:500;
 values 0 0.05;
end;


So you get that alpha is 0.3 for period 0 to period 15 and then jumps to 0.35 in period 15 and stays there till period 500. Choose a large endtime value to pretend an permanent shock.
5. Then end up with the simul command: e.g.: simul(periods = 500);

This is it. You can see the reaction of your variables by simply plotting them. Of course the interesting part is in the beginning of the periods so do not plot the whole simulation but just the beginning of it.

Greetings,
Daniel