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<a name="Shocks-on-exogenous-variables"></a>
<div class="header">
<p>
Next: <a href="Other-general-declarations.html#Other-general-declarations" accesskey="n" rel="next">Other general declarations</a>, Previous: <a href="Initial-and-terminal-conditions.html#Initial-and-terminal-conditions" accesskey="p" rel="prev">Initial and terminal conditions</a>, Up: <a href="The-Model-file.html#The-Model-file" accesskey="u" rel="up">The Model file</a> &nbsp; [<a href="index.html#SEC_Contents" title="Table of contents" rel="contents">Contents</a>][<a href="Command-and-Function-Index.html#Command-and-Function-Index" title="Index" rel="index">Index</a>]</p>
</div>
<a name="Shocks-on-exogenous-variables-1"></a>
<h3 class="section">4.8 Shocks on exogenous variables</h3>

<p>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 <code>initval</code> and <code>endval</code>.
</p>
<p>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&hellip;). 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 <code>shocks</code>.
</p>
<p>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 <code>shocks</code>
command. Or, the entire matrix can be directly entered with
<code>Sigma_e</code> (this use is however deprecated).
</p>
<p>If the variance of an exogenous variable is set to zero, this variable
will appear in the report on policy and transition functions, but
isn&rsquo;t used in the computation of moments and of Impulse Response
Functions. Setting a variance to zero is an easy way of removing an
exogenous shock.
</p>
<p>Note that, by default, if there are several <code>shocks</code> or <code>mshocks</code>
blocks in the same <samp>.mod</samp> file, then they are cumulative: all the shocks
declared in all the blocks are considered; however, if a <code>shocks</code> or
<code>mshocks</code> block is declared with the <code>overwrite</code> option, then it
replaces all the previous <code>shocks</code> and <code>mshocks</code> blocks.
</p>
<dl>
<dt><a name="index-shocks"></a>Block: <strong>shocks</strong> <em>;</em></dt>
<dt><a name="index-shocks-1"></a>Block: <strong>shocks</strong> <em>(overwrite) ;</em></dt>
<dd>
<p>See above for the meaning of the <code>overwrite</code> option.
</p>
<p><em>In deterministic context</em>
</p>
<p>For deterministic simulations, the <code>shocks</code> block specifies
temporary changes in the value of exogenous variables. For
permanent shocks, use an <code>endval</code> block.
</p>
<p>The block should contain one or more occurrences of the following
group of three lines:
</p>
<div class="example">
<pre class="example">var <var>VARIABLE_NAME</var>;
periods <var>INTEGER</var>[:<var>INTEGER</var>] [[,] <var>INTEGER</var>[:<var>INTEGER</var>]]&hellip;;
values <var>DOUBLE</var> | (<var>EXPRESSION</var>)  [[,] <var>DOUBLE</var> | (<var>EXPRESSION</var>) ]&hellip;;
</pre></div>

<p>It is possible to specify shocks which last several periods and which can
vary over time. The <code>periods</code> keyword accepts a list of
several dates or date ranges, which must be matched by as many shock values
in the <code>values</code> keyword. Note that a range in the
<code>periods</code> keyword can be matched by only one value in the
<code>values</code> keyword. If <code>values</code> represents a scalar, the same
value applies to the whole range. If <code>values</code> represents a vector,
it must have as many elements as there are periods in the range.
</p>
<p>Note that shock values are not restricted to numerical constants:
arbitrary expressions are also allowed, but you have to enclose them
inside parentheses.
</p>
<p>Here is an example:
</p>
<div class="example">
<pre class="example">shocks;
var e;
periods 1;
values 0.5;
var u;
periods 4:5;
values 0;
var v;
periods 4:5 6 7:9;
values 1 1.1 0.9;
var w;
periods 1 2;
values (1+p) (exp(z));
end;
</pre></div>

<p>A second example with a vector of values:
</p>
<div class="example">
<pre class="example">xx = [1.2; 1.3; 1];

shocks;
var e;
periods 1:3;
values (xx);
end;
</pre></div>


<p><em>In stochastic context</em>
</p>
<p>For stochastic simulations, the <code>shocks</code> block specifies the non
zero elements of the covariance matrix of the shocks of exogenous
variables.
</p>
<p>You can use the following types of entries in the block:
</p>
<dl compact="compact">
<dt><code>var <var>VARIABLE_NAME</var>; stderr <var>EXPRESSION</var>;</code></dt>
<dd><p>Specifies the standard error of a variable.
</p>
</dd>
<dt><code>var <var>VARIABLE_NAME</var> = <var>EXPRESSION</var>;</code></dt>
<dd><p>Specifies the variance of a variable.
</p>
</dd>
<dt><code>var <var>VARIABLE_NAME</var>, <var>VARIABLE_NAME</var> = <var>EXPRESSION</var>;</code></dt>
<dd><p>Specifies the covariance of two variables.
</p>
</dd>
<dt><code>corr <var>VARIABLE_NAME</var>, <var>VARIABLE_NAME</var> = <var>EXPRESSION</var>;</code></dt>
<dd><p>Specifies the correlation of two variables.
</p>
</dd>
</dl>

<p>In an estimation context, it is also possible to specify variances and
covariances on endogenous variables: in that case, these values are interpreted
as the calibration of the measurement errors on these variables. This requires
the <code>varobs</code> command to be specified before the <code>shocks</code> block.
</p>
<p>Here is an example:
</p>
<div class="example">
<pre class="example">shocks;
var e = 0.000081;
var u; stderr 0.009;
corr e, u = 0.8;
var v, w = 2;
end;
</pre></div>

<p><em>Mixing deterministic and stochastic shocks</em>
</p>
<p>It is possible to mix deterministic and stochastic shocks to build
models where agents know from the start of the simulation about future
exogenous changes. In that case <code>stoch_simul</code> will compute the
rational expectation solution adding future information to the state
space (nothing is shown in the output of <code>stoch_simul</code>) and
<code>forecast</code> will compute a simulation conditional on initial
conditions and future information.
</p>
<p>Here is an example:
</p>
<div class="example">
<pre class="example">varexo_det tau;
varexo e;

&hellip;

shocks;
var e; stderr 0.01;
var tau;
periods 1:9;
values -0.15;
end;

stoch_simul(irf=0);

forecast;
</pre></div>

</dd></dl>


<dl>
<dt><a name="index-mshocks"></a>Block: <strong>mshocks</strong> <em>;</em></dt>
<dt><a name="index-mshocks-1"></a>Block: <strong>mshocks</strong> <em>(overwrite) ;</em></dt>
<dd>
<p>The purpose of this block is similar to that of the <code>shocks</code>
block for deterministic shocks, except that the numeric values given
will be interpreted in a multiplicative way. For example, if a value
of <code>1.05</code> is given as shock value for some exogenous at some
date, it means 5% above its steady state value (as given by the last
<code>initval</code> or <code>endval</code> block).
</p>
<p>The syntax is the same than <code>shocks</code> in a deterministic context.
</p>
<p>This command is only meaningful in two situations:
</p>
<ul>
<li> on exogenous variables with a non-zero steady state, in a deterministic setup,

</li><li> on deterministic exogenous variables with a non-zero steady state, in
a stochastic setup.
</li></ul>

<p>See above for the meaning of the <code>overwrite</code> option.
</p>
</dd></dl>

<dl>
<dt><a name="index-Sigma_005fe"></a>Special variable: <strong>Sigma_e</strong></dt>
<dd>
<p><em>Warning</em>
</p>
<p><strong>The use of this special variable is deprecated and is strongly
discouraged.</strong> You should use a <code>shocks</code> block instead.
</p>
<p><em>Description</em>
</p>
<p>This special variable specifies directly the covariance matrix of the
stochastic shocks, as an upper (or lower) triangular matrix. Dynare
builds the corresponding symmetric matrix. Each row of the triangular
matrix, except the last one, must be terminated by a semi-colon
<code>;</code>. For a given element, an arbitrary <var>EXPRESSION</var> is
allowed (instead of a simple constant), but in that case you need to
enclose the expression in parentheses. <em>The order of the
covariances in the matrix is the same as the one used in the
<code>varexo</code> declaration.</em>
</p>
<p><em>Example</em>
</p>
<div class="example">
<pre class="example">

varexo u, e;
&hellip;
Sigma_e = [ 0.81 (phi*0.9*0.009);
            0.000081];
</pre></div>

<p>This sets the variance of <code>u</code> to 0.81, the variance of <code>e</code>
to 0.000081, and the correlation between <code>e</code> and <code>u</code> to
<code>phi</code>.
</p>
</dd></dl>

<hr>
<div class="header">
<p>
Next: <a href="Other-general-declarations.html#Other-general-declarations" accesskey="n" rel="next">Other general declarations</a>, Previous: <a href="Initial-and-terminal-conditions.html#Initial-and-terminal-conditions" accesskey="p" rel="prev">Initial and terminal conditions</a>, Up: <a href="The-Model-file.html#The-Model-file" accesskey="u" rel="up">The Model file</a> &nbsp; [<a href="index.html#SEC_Contents" title="Table of contents" rel="contents">Contents</a>][<a href="Command-and-Function-Index.html#Command-and-Function-Index" title="Index" rel="index">Index</a>]</p>
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