Theoretical Moments in Second Order Approximations

[prabanal]

Hi there,

I am encountering an issue and I am not sure if this is a problem or not. I have programmed a DSGE in levels. Then I use stoch_simul(order=1) and stoch_simul(order=2) to compute the theoretical mean and variance of the model's variables. I find that the mean of the variables when I take a second order approximation to be different than the mean when I take a first order approximation. This makes sense and is expected. However, and this is what puzzles me, the variance of the model's variables is exactly the same when I take a first or a second order approximation. Is this correct? Thanks, Pau.

[jpfeifer]

That comes from the way theoretical moments are computed at second order. As documented in the manual, Kim et al have shown that a first order approximation delivers second order accurate moments.