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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.

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.