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Hello,

I'm new to Dynare, and I would really appreciate it if you guys could help me out. I'm running a simple RBC model, and I want to change the variance of the technology shocks. (I call the variance log_s.) I want to have high(=3) and low(=1) variance at different time periods, with a .625 chance that the current time period's variance is the same as the previous time period's (so a .375 chance it switches). I do this using eta2, drawn from a standard normal distribution, with .319 as the z-score cutoff - since there is a .625 chance that a standard normal variable will fall below .319. Since I know that Dynare accepts logical statements and interprets them as 1 if true and 0 if false, I thought the following would work:

log_s = (eta2 < z)*(log_s(-1)) + (eta2 > z)*(log_s(-1) == low)*(high) + (eta2 > z)*(log_s(-1) == high)*(low);

where log_A = rho*log_A(-1) + (log_s)*eta;

However, when I run my code, log_s does not change. What am I doing wrong? I have attached my complete code below. Thanks in advance for your help!

================================
Code
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var log_c log_k log_h log_A log_w r log_i log_y log_s;
varexo eta eta2;

parameters beta alpha gamma delta rho s epsilon z high low;
beta=0.985;
alpha=1/3;
gamma=1;
delta=0.025;
rho = 0.9;
s=0.0107;
epsilon = 1;
z = 0.319;
high = 3;
low = 1;


model;

// HOUSEHOLDS:
// Euler equation:
1/exp(log_c) = beta*(1+r(+1)-delta)*( 1/exp(log_c(+1)) );

// Intra-temporal condition (FOC with respect to h):
( 1/exp(log_c) )*exp(log_w) = gamma*exp(log_h)^(1/epsilon);

// Budget constraint of households
exp(log_k) = (1+r-delta)*exp(log_k(-1)) + exp(log_w)*exp(log_h) - exp(log_c);

// Capital accumulation:
exp(log_k) = (1-delta)*exp(log_k(-1)) + exp(log_i);


// FIRMS:
// FOC labor:
exp(log_w) = (1-alpha)*exp(log_A)*( exp(log_k(-1))/exp(log_h) )^alpha;

// FOC capital:
r = alpha*exp(log_A)*( exp(log_h)/exp(log_k(-1)) )^(1-alpha);

// Output
exp(log_y) = exp(log_A)*exp(log_k(-1))^alpha*exp(log_h)^(1-alpha);


// EXOGENOUS PROCESS FOR TECHNOLOGY
log_s = (eta2 < z)*(log_s(-1)) + (eta2 > z)*(log_s(-1) == low)*(high) + (eta2 > z)*(log_s(-1) == high)*(low);

log_A = rho*log_A(-1) + (log_s)*eta

end;

initval;
log_k= 3.08518;
log_c= 0.738489;
log_h= -0.0866715;
log_A=0;
log_s = 1;
log_w=log( (1-alpha)*exp(log_A)*( exp(log_k)/exp(log_h) )^alpha );
r=alpha*exp(log_A)*( exp(log_h)/exp(log_k) )^(1-alpha);

log_i= -0.603697;
log_y= 0.970611;

end;

shocks;
var eta2;
stderr 1;
var eta;
stderr 1;
end;

steady;
check;
stoch_simul(hp_filter=1600, irf=40, periods=1000, ar=1, nocorr, order=1);

What you envision implies a discontinuity. The perturbation solution techniques are based on Taylor approximations and will not work in this case.

Thank you very much for responding. Does this mean Dynare is unable to simulate the changes I would like? Or is there a way to get around this discontinuity issue?

In a stochastic context, you might be able to use the extended path method.