Do we need to consider Expectations Error in dynare?

[fuyangzhao]

Hi all,

Both Blanchard-Kahn method and Sims' method consider the expectations error in the system. They introduce this term in order to drop the expectations operators.

In dynare examples, however, I don't see any expectations error or expectations operators. Do we need to consider the expectations error in dynare?

Thanks in advance for any help!

[jpfeifer]

Yes. Dynare by convention assumes a conditional expectations operator in front of every equation when doing stochastic simulations.

[fuyangzhao]

Yes. Dynare by convention assumes a conditional expectations operator in front of every equation when doing stochastic simulations.

Thanks Professor!
So...Since Dynare has considered expectations operator, we do not need to consider the expectations error, right?

[jpfeifer]

What do you mean with

do not need to consider the expectations error

?

You usually do not have to explicitly define one, but you still have to "consider" them so that the Blanchard-Kahn conditions are satisfied.

[fuyangzhao]

What do you mean with

do not need to consider the expectations error

?

You usually do not have to explicitly define one, but you still have to "consider" them so that the Blanchard-Kahn conditions are satisfied.

Sorry for my improper use of words.

I came up with this question becacuse of the attached file

Model_LinearEquations.pdf

(138.61 KiB) Downloaded 75 times

, which is a part of Mathematica code for a DSGE model. In that file, besides rational expectations equations and shock processes equations, the author also introduced expectations error equation, which are never seen in Dynare code...

[jpfeifer]

No, you don't have to explicitly introduce expectational errors in Dynare. If you correctly use Dynare's timing convention, they are implied.