Exogenous Shocks - Simulations

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jmurray804
Posts: 6
Joined: Fri Jun 10, 2016 8:37 am

Exogenous Shocks - Simulations

Postby jmurray804 » Tue Jul 12, 2016 8:06 am

Hi, hopefully a quick one for you.

I'm trying to see how a policy rule responds to a series of shocks to the supply potential of the economy.
Problem is that my model features lots of forward-looking behaviour so the agents in the economy see the shocks coming.

Is there a way I can run a simulation in which shocks cannot be anticipated?

Many thanks and sorry if I've missed some earlier discussion of this - I did have a look for it.

Jamie


I've attached the workfile.
The shock I've been running enters the model as a variable called SShock in the trend GDP equation.
I've got a series of shocks starting from 2020Q1. But I can see that the exchange rate (Q) is responding when I run scenario 1 from the beginning of the solution period. In other words, everyone is seeing these shocks coming, rather than experiencing them as exogenous shocks.
Attachments
smaller model test 1207.wf1
(110.22 KiB) Downloaded 54 times

jmurray804
Posts: 6
Joined: Fri Jun 10, 2016 8:37 am

Re: Exogenous Shocks - Simulations

Postby jmurray804 » Wed Jul 13, 2016 7:47 am

In case anyone wondering, I believe it's the case that you'll need software other than Eviews to solve the problem easily.

I was thinking about it and running a series of unexpected shocks through the model is basically the same thing as drawing random shocks as is the case in stochastic simulation mode. And Eviews is not capable of stochastic simulations when there are forward-looking terms in the model.
To solve these models would require iterating through period by period and updating the expectations at each point.

Seems to me that the only easy way to do it is to run the simulation tool in something like Dynare. Do correct me if I'm wrong and it would be great if this functionality were to be included in future updates to Eviews.

All best,

Jamie


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