Stochastic shocks in some periods- Iacoviello 2015
Posted: Mon Feb 20, 2017 3:45 pm
Dear Prof. Jpfeifer,
Thank you for your help in advance.
I am working on Iacoviello 2015 (Financial business cycles). He has a stochastic DSGE model. He has a stochastic shock let's say as :
x=0.9* x(-1)+eps;
and he says :"I feed into the model a sequence of unexpected shocks to eps, each quarter equal to 0.38 percent of annual GDP, which lasts 12 quarters and causes losses for the banking system to rise from zero to 2.8 percent of GDP after 3 years, before loan losses gradually return to zero."
I would like to know how it is possible to have a stochastic shock for some period and how I can set this shock for example to 0.38 percent of annual GDP?
I appreciate you time and consideration.
Leo
Thank you for your help in advance.
I am working on Iacoviello 2015 (Financial business cycles). He has a stochastic DSGE model. He has a stochastic shock let's say as :
x=0.9* x(-1)+eps;
and he says :"I feed into the model a sequence of unexpected shocks to eps, each quarter equal to 0.38 percent of annual GDP, which lasts 12 quarters and causes losses for the banking system to rise from zero to 2.8 percent of GDP after 3 years, before loan losses gradually return to zero."
I would like to know how it is possible to have a stochastic shock for some period and how I can set this shock for example to 0.38 percent of annual GDP?
I appreciate you time and consideration.
Leo