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Shocks on exogenous variables

In a deterministic context, when one wants to study the transition of one equilibrium position to another, it is equivalent to analyze the consequences of a permanent shock and this in done in DYNARE through the proper use of initval and endval.

Another typical experiment is to study the effects of a temporary shock after which the system goes back to the original equilibrium (if the model is stable ...). A temporary shock is a temporary change of value of one or several exogenous variables in the model. Temporary shocks are specified with the command shocks.

In a stochastic framework, the exogenous variables take random values in each period. In DYNARE, these random values follow a normal distribution with zero mean, but it belongs to the user to specify the variability of these shocks. The non-zero elements of the matrix of variance-covariance of the shocks can be entered with the shocks command. Or, the entire matrix can be direclty entered with Sigma_e. Note that, starting with version 2.5.2, the direct specification of the internal matrix Sigma_e_, prone to errors, is discouraged.