Dynare forums

Dear all,

I have a question concerning the size of estimated standard deviations of shock processes. In the model I have four shocks: monetary policy shock, technology, cost-push and housing preference shock.
Estimated standard deviations are:
technology - 0.2767
cost-push - 0.0381
monetary policy - 0.0016
housing demand - 2.3635

So housing demand shock is extremely large, does this mean that something is going wrong? If I have a good explanation that in my sample period house prices have changed dramatically, isn't it still an implausibly large standard deviation in comarison to other shocks?

Thank you!

That depends on the scaling. If the shock is in percent and thus implies 200%, then clearly something is wrong.

Variables are written as log deviations, but the scaling of shocks is 0.01%, so this would be about 2%. But still I suppose it is suspicious when one shock is 10 or 100 times larger than the other one..

It is a bit suspicious, but not unheard of. For example, estimated preference shocks are often an order of magnitude larger than other shocks. See e.g Born/Peter/Pfeifer (2013): Fiscal News and Macroeconomic Volatility, http://www.sciencedirect.com/science/article/pii/S0165188913001437 for an example.