Setting the path for deterministic simulation.

[biantim]

Hi,

I am now writing a dynare code for a deterministic simulation. Suppose there is a shock on an exogenous variable, starting from the old SS, rising at constant speed for 10 periods to the new SS, then stay there for ever.

when I set up the path for shocks, should I let the first shock happen at period (0:1) or (1:2)? If I let the first shock happen at period (0:1), is that shock still perfectly anticipated? Or is that a surprise to the economy?

Thank you very much!

[jpfeifer]

At time 0 it should be the initial condition of your economy, i.e. the shock has already happened last period. At time 1, the shock comes as a surprise as agents can only react when the shocks occurs and not even before this at time 0.