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First Dynare Working Papers
by Sébastien Villemot 28 Sep '11

28 Sep '11

Dear Dynare users, Please find below the list of the first papers added to the Dynare Working Papers series. If you want to add your paper to the series, instructions on how to proceed are on: http://www.dynare.org/wp/desc Summary of contents: #9: Getting Normalization Right: Dealing with ‘Dimensional Constants’ in Macroeconomics Cristiano Cantore, Paul Levine #8: Indirect Likelihood Inference Michael Creel, Dennis Kristensen #7: Évaluation de la politique monétaire dans un modèle DSGE pour la zone euro Stéphane Adjemian, Antoine Devulder #6: Taking Perturbation to the Accuracy Frontier: A Hybrid of Local and Global Solutions Lilia Maliar, Serguei Maliar, Sébastien Villemot #5: Switching Monetary Policy Regimes and the Nominal Term Structure Marcelo Ferman #4: Products, patents and productivity persistence: A DSGE model of endogenous growth Tom Holden #3: A Graphical Representation of an Estimated DSGE Model Mariano Kulish, Callum Jones #2: Solving rational expectations models at first order: what Dynare does Sébastien Villemot #1: Dynare: Reference Manual, Version 4 Stéphane Adjemian, Houtan Bastani, Michel Juillard, Ferhat Mihoubi, George Perendia, Marco Ratto, Sébastien Villemot Contents: #9: Getting Normalization Right: Dealing with ‘Dimensional Constants’ in Macroeconomics By: Cristiano Cantore Paul Levine Date: 2011-07 PDF: http://www.dynare.org/wp-repo/dynarewp009.pdf Source: http://www.dynare.org/wp-repo/dynarewp009.zip We contribute to a recent literature on the normalization, calibration and estimation of CES production functions. The problem arises because CES ‘share’ parameters are not in fact shares, but depend on underlying dimensions - they are ‘dimensional constants’ in other words. It follows that such parameters cannot be calibrated, nor estimated unless the choice of units is made explicit. We use an RBC model to demonstrate two equivalent solutions. The standard one expresses the production function in deviation form about some reference point, usually the steady state of the model. Our alternative, ‘re-parametrization’, expresses dimensional constants in terms of a new dimensionless (share) parameter and all remaining dimensionless ones. We show that our ‘re-parametrization’ method is equivalent and arguably more straightforward than the standard normalization in deviation form. We then examine a similar problem of dimensional constants for CES utility functions in a two-sector model and in a small open economy model; then re-parametrization is the only solution to the problem, showing that our approach is in fact more general. #8: Indirect Likelihood Inference By: Michael Creel Dennis Kristensen Date: 2011-07 PDF: http://www.dynare.org/wp-repo/dynarewp008.pdf Source: http://www.dynare.org/wp-repo/dynarewp008.zip Given a sample from a fully specified parametric model, let $Z_n$ be a given finite-dimensional statistic - for example, an initial estimator or a set of sample moments. We propose to (re-)estimate the parameters of the model by maximizing the likelihood of $Z_n$. We call this the maximum indirect likelihood (MIL) estimator. We also propose a com- putationally tractable Bayesian version of the estimator which we refer to as a Bayesian Indirect Likelihood (BIL) estimator. In most cases, the density of the statistic will be of unknown form, and we develop simulated versions of the MIL and BIL estimators. We show that the indirect likelihood estimators are consistent and asymptotically normally distributed, with the same asymptotic variance as that of the corresponding efficient two-step GMM estimator based on the same statistic. However, our likelihood-based estimators, by taking into account the full finite-sample distribution of the statistic, are higher order efficient relative to GMM-type estimators. Furthermore, in many cases they enjoy a bias reduction property similar to that of the indirect inference estimator. Monte Carlo results for a number of applications including dynamic and nonlinear panel data models, a structural auction model and two DSGE models show that the proposed estimators indeed have attractive finite sample properties. #7: Évaluation de la politique monétaire dans un modèle DSGE pour la zone euro By: Stéphane Adjemian Antoine Devulder Date: 2011-05 PDF: http://www.dynare.org/wp-repo/dynarewp007.pdf Source: http://www.dynare.org/wp-repo/dynarewp007.tar.bz2 Dans cet article nous présentons de façon détaillée un modèle DSGE canonique et montrons comment celui-ci peut être simulé puis estimé. Nous proposons deux applications sur la base du modèle estimé. Dans la première nous évaluons les conséquences sur le bien être social de la forme de la politique monétaire. On montre que le bien être social est significativement dégradé si la Banque Centrale ne prend pas en compte l’écart de production. Dans la seconde, nous interrogeons le modèle sur la publicité que la Banque Centrale doit faire autour de sa politique. Nous montrons que face à un choc de productivité négatif il est préférable de ne pas annoncer une politique monétaire accommodante, afin de limiter l’ampleur des tensions inflationnistes. #6: Taking Perturbation to the Accuracy Frontier: A Hybrid of Local and Global Solutions By: Lilia Maliar Serguei Maliar Sébastien Villemot Date: 2011-05 PDF: http://www.dynare.org/wp-repo/dynarewp006.pdf Source: http://www.dynare.org/wp-repo/dynarewp006.tar.gz Perturbation methods produce solutions of lower accuracy than global Euler equation-based methods. In the present paper, we implement a hybrid method that solves for some policy functions locally (using standard perturbation) and solves for the other policy functions globally (using closed-form expressions and a numerical solver). Our hybrid method extends the current speed-accuracy frontier: for a multi-country RBC model used for comparing numerical methods in a special 2011 issue of the JEDC, we attain higher accuracy of solutions than any other method participating in the comparison analysis. Our solutions are computed with the help of Dynare, and the programs are publicly available. #5: Switching Monetary Policy Regimes and the Nominal Term Structure By: Marcelo Ferman Date: 2011-05 PDF: http://www.dynare.org/wp-repo/dynarewp005.pdf Source: http://www.dynare.org/wp-repo/dynarewp005.mod This paper builds a dynamic stochastic general equilibrium (DSGE) model of endogenous growth that is capable of generating substantial degrees of endogenous persistence in productivity. When products go out of patent protection, the rush of entry into their production destroys incentives for process improvements. Consequently, old production processes are enshrined in industries producing non-protected products, resulting in aggregate productivity persistence. Our model also generates sizeable delayed movements in productivity in response to preference shocks, providing a form of endogenous news shock. Finally, if we calibrate our model to match a high aggregate mark-up then we can replicate the negative response of hours to a positive technology shock, even without the inclusion of any frictions. #4: Products, patents and productivity persistence: A DSGE model of endogenous growth By: Tom Holden Date: 2011-05 PDF: http://www.dynare.org/wp-repo/dynarewp004.pdf Source: http://www.dynare.org/wp-repo/dynarewp004.zip This paper builds a dynamic stochastic general equilibrium (DSGE) model of endogenous growth that is capable of generating substantial degrees of endogenous persistence in productivity. When products go out of patent protection, the rush of entry into their production destroys incentives for process improvements. Consequently, old production processes are enshrined in industries producing non-protected products, resulting in aggregate productivity persistence. Our model also generates sizeable delayed movements in productivity in response to preference shocks, providing a form of endogenous news shock. Finally, if we calibrate our model to match a high aggregate mark-up then we can replicate the negative response of hours to a positive technology shock, even without the inclusion of any frictions. #3: A Graphical Representation of an Estimated DSGE Model By: Mariano Kulish Callum Jones Date: 2011-05 PDF: http://www.dynare.org/wp-repo/dynarewp003.pdf Source: http://www.dynare.org/wp-repo/dynarewp003.zip We write a New Keynesian model as an aggregate demand curve and an aggregate supply curve, relating inflation to output growth. The graphical representation shows how structural shocks move aggregate demand and supply simultaneously. We estimate the curves on US data from 1948 to 2010. The Great Recession in 2008-09 is explained by a collapse of aggregate demand driven by adverse preference and permanent technology shocks, and expectations of low inflation. #2: Solving rational expectations models at first order: what Dynare does By: Sébastien Villemot Date: 2011-04 PDF: http://www.dynare.org/wp-repo/dynarewp002.pdf This paper describes in detail the algorithm implemented in Dynare for computing the first order approximated solution of a nonlinear rational expectations model. The core of the algorithm is a generalized Schur decomposition (also known as the QZ decomposition), as advocated by several authors in the litterature. The contribution of the present paper is to focus on implementation details that make the algorithm more generic and more efficient, especially for large models. #1: Dynare: Reference Manual, Version 4 By: Stéphane Adjemian Houtan Bastani Michel Juillard Ferhat Mihoubi George Perendia Marco Ratto Sébastien Villemot Date: 2011-04 PDF: http://www.dynare.org/wp-repo/dynarewp001.pdf Dynare is a software platform for handling a wide class of economic models, in particular dynamic stochastic general equilibrium (DSGE) and overlapping generations (OLG) models. The models solved by Dynare include those relying on the rational expectations hypothesis, wherein agents form their expectations about the future in a way consistent with the model. But Dynare is also able to handle models where expectations are formed differently: on one extreme, models where agents perfectly anticipate the future; on the other extreme, models where agents have limited rationality or imperfect knowledge of the state of the economy and, hence, form their expectations through a learning process. Dynare offers a user-friendly and intuitive way of describing these models. It is able to perform simulations of the model given a calibration of the model parameters and is also able to estimate these parameters given a dataset. Dynare is a free software, which means that it can be downloaded free of charge, that its source code is freely available, and that it can be used for both non-profit and for-profit purposes. -- Sébastien Villemot Researcher in Economics at CEPREMAP & Debian Maintainer http://www.dynare.org/sebastien Phone: +33-1-40-77-49-90 - GPG Key: 4096R/381A7594

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Release of Dynare 4.2.1
by Sébastien Villemot 24 May '11

24 May '11

Dear Dynare users, We are pleased to announce the release of Dynare 4.2.1. Many bugs have been fixed since the previous release. The reference manual has also been improved: new contents has been added at various places, the structure has been improved, an index of functions and variables has been added, the PDF/HTML rendering has been improved. The Windows package is already available for download at the official Dynare website [1]. The Mac and Linux packages should follow soon. All users are strongly encouraged to upgrade. This release is compatible with MATLAB versions ranging from 7.0 (R14) to 7.12 (R2011a) and with GNU Octave versions ranging from 3.0 to 3.4. Here is a list of the main bugfixes since version 4.2.0: * The `STEADY_STATE' operator has been fixed * Problems with MATLAB 7.3 (R2006b) and older have been fixed * The `partial_information' option of `stoch_simul' has been fixed * Option `conditional_variance_decomposition' of `stoch_simul' and `estimation' has been fixed * Automatic detrending now works in conjunction with the `EXPECTATION' operator * Percentage signs inside strings in MATLAB statements (like disp('% This is not a comment %')) now work * Beta prior with a very small standard deviation now work even if you do not have the MATLAB Statistical toolbox * External functions can now been used in assignment of model local variables * `identification' command has been fixed * Option `cova_compute' of `estimation' command has been fixed * Random crashes with 3rd order approximation without `use_dll' option have been eliminated [1] http://www.dynare.org On behalf of the Dynare team, -- Sébastien Villemot CEPREMAP - Paris School of Economics Homepage: http://www.dynare.org/sebastien Landline phone: +33 1 40 77 49 90 SIP phone: sebastien.villemot(a)ekiga.net PGP Key: 0xA6C029B9D06B2913D71C105EBE37E801FB6EFF8B (http://pgp.mit.edu/)

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7th Dynare Conference (Call for Papers)
by Sébastien Villemot 20 Apr '11

20 Apr '11

Dear all, The 7th annual DYNARE Conference (www.dynare.org) will be held in Atlanta on September 9-10, 2011. The conference is organized by the Center for Quantitative Economic Research (CQER) at the Federal Reserve Bank of Atlanta together with DSGE-net and the Dynare project at CEPREMAP. The DYNARE conference will feature the work of the leading scholars in dynamic macroeconomic modeling and provide an excellent opportunity to present your own research results. Lars Peter Hansen (University of Chicago) and Giorgio Primiceri (Northwestern University) will be plenary speakers. Submission of the papers focusing on the following issues is encouraged: - Model uncertainty and optimal policy; - Imperfect information and learning; - Model and parameter identification; - Occasionally binding financial constraints. The list is not all-inclusive. Submissions of papers dealing with different aspects of DSGE modelling and computational methods are all welcome. Submissions of papers using other software tools than DYNARE or theoretical contributions are also encouraged. Complete manuscripts or detailed abstracts should be sent in PDF format to Hanane Bahala at the following address: hanane.bahala(a)ens.fr Deadline for submissions is May 15, 2010. Authors of accepted papers will be informed by June 1, 2011. Organizers: - Michel Juillard (Bank of France); - Daniel Waggoner (Federal Reserve Bank of Atlanta); - Tao Zha (Federal Reserve Bank of Atlanta and Emory University). We apologize for multiple posting. -- Sébastien Villemot CEPREMAP - Paris School of Economics Homepage: http://www.dynare.org/sebastien Landline phone: +33 1 40 77 49 90 SIP phone: sebastien.villemot(a)ekiga.net PGP Key: 0xA6C029B9D06B2913D71C105EBE37E801FB6EFF8B (http://pgp.mit.edu/)

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Dynare Working Papers series
by Stéphane Adjemian 15 Apr '11

15 Apr '11

Dear all, The Dynare team is pleased to announce the creation of the Dynare Working Papers series [1]. The Dynare Working Papers series is intended for the following kind of contributions: * methodological papers related to current or forthcoming Dynare functionality; * papers in quantitative macroeconomics whose results (or portion thereof) have been obtained with the help of Dynare. Authors are encouraged to submit papers falling into one of the two aforementioned categories, even if they have already been published in another working papers series. Note that contributions not directly related to Dynare, but still pertaining to the fields of numerical methods or of quantitative macroeconomics, are also welcome. Submissions should be sent by e-mail to: wp(a)dynare.org. We commit ourselves to giving a fast and fair editorial decision, but please forgive us if you do not receive a full-fledged referee report in return. The goal of this series being state of the art dissemination, the source code of computer programs used in the paper should also be included in the submission (this covers Dynare MOD files and/or any other program, whether written in MATLAB, Octave, Fortran, C, C++, etc). If the submission is accepted, the source code will be made publicly available on our website. Papers and codes published in the series are automatically added to the RePEc [2] database. We are waiting for your contributions! Stéphane and Sébastien. [1] http://www.dynare.org/wp [2] http://ideas.repec.org/s/cpm/dynare.html

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Dynare Summer School, Paris 2011
by Stéphane Adjemian 25 Feb '11

25 Feb '11

Dear Dynare users, We are pleased to announce that the Dynare Summer School will be organized in Paris from June 20 to June 24, 2011. Location: Holiday Inn Express 68 quai de la seine, 75019 Paris France Details are given on Dynare's website: http://www.dynare.org/events/dynare-summer-school-2011 Best, Stéphane. -- Stéphane Adjemian Université du Maine, GAINS & CEPREMAP http://www.dynare.org/stepan

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Release of Dynare 4.2.0
by Sébastien Villemot 15 Feb '11

15 Feb '11

Dear Dynare users, We are pleased to announce the release of Dynare 4.2.0. This major release adds new features and fixes various bugs. The Windows package is already available for download. The Mac and Linux packages should follow soon. All users are strongly encouraged to upgrade. This release is compatible with MATLAB versions ranging from 6.5 (R13) to 7.11 (R2010b) and with GNU Octave versions 3.0.x and 3.2.x (support for GNU Octave 3.4.x is not complete and will be added in the next minor release). Here is the list of major user-visible changes: * New solution algorithms: - Pruning for second order simulations has been added, as described in Kim, Kim, Schaumburg and Sims (2008) [1,2] - Models under partial information can be solved, as in Pearlman, Currie and Levine (1986) [3,4] - New nonlinear solvers for faster deterministic simulations and steady state computation [5] * Dynare can now use the power of multi-core computers or of a cluster of computer using parallelization [6] * New features in the user interface: - A steady state file can now be automatically generated, provided that the model can be solved analytically, and that the steady state as a function of the parameters is declared with the new "steady_state_model" command [7] - For non-stationary models, Dynare is now able of automatically removing trends in all the equations: the user writes the equations in non-stationary form and declares the deflator of each variable. Then Dynare perform a check to determine if the proposed deflators are compatible with balanced growth path, and, if yes, then it computes the detrended equations [8] - It is now possible to use arbitrary functions in the model block [9] * Other minor changes to the user interface: - New primitives allowed in model block: normpdf(), erf() - New syntax for DSGE-VAR [10] - Syntax of deterministic shocks has changed: after the values keyword, arbitrary expressions must be enclosed within parentheses (but numeric constants are still accepted as is) * Various improvements: - Third order simulations now work without the "USE_DLL" option: installing a C++ compiler is no longer necessary for 3rd order - The HP filter works for empirical moments (previously it was only available for theoretical moments) - "ramsey_policy" now displays the planner objective value function under Ramsey policy and stores it in "oo_.planner_objective_value" - Estimation: if the "selected_variables_only" option is present, then the smoother will only be run on variables listed just after the estimation command - Estimation: in the "shocks" block, it is now possible to calibrate measurement errors on endogenous variables (using the same keywords than for calibrating variance/covariance matrix of exogenous shocks) - It is possibile to choose the parameter set for shock decomposition [11] - The diffuse filter now works under Octave - New option "console" on the Dynare command-line: use it when running Dynare from the console, it will replace graphical waitbars by text waitbars for long computations - Steady option "solve_algo=0" (uses fsolve()) now works under Octave * For Emacs users: - New Dynare mode for Emacs editor (contributed by Yannick Kalantzis) - Reference manual now available in Info format (distributed with Debian/Ubuntu packages) * Miscellaneous: - Deterministic models: leads and lags of two or more on endogenous variables are now substituted by auxiliary variables; exogenous variables are left as is [12] [1] Kim, J., S. Kim, E. Schaumburg and C.A. Sims (2008), "Calculating and using second-order accurate solutions of discrete time dynamic equilibrium models", Journal of Economic Dynamics and Control, 32(11), 3397-3414 [2] It is triggered by option "pruning" of "stoch_simul" (only 2nd order, not available at 3rd order) [3] Pearlman J., D. Currie and P. Levine (1986), "Rational expectations models with partial information", Economic Modelling, 3(2), 90-105 [4] http://www.dynare.org/DynareWiki/PartialInformation [5] http://www.dynare.org/DynareWiki/FastDeterministicSimulationAndSteadyStateC… [6] http://www.dynare.org/DynareWiki/ParallelDynare [7] See the entry for "steady_state_model" in the reference manual for more details and an example [8] http://www.dynare.org/DynareWiki/RemovingTrends [9] http://www.dynare.org/DynareWiki/ExternalFunctions [10] http://www.dynare.org/DynareWiki/DsgeVar [11] http://www.dynare.org/DynareWiki/ShockDecomposition [12] http://www.dynare.org/DynareWiki/AuxiliaryVariables On behalf of the Dynare team, -- Sébastien Villemot CEPREMAP - Paris School of Economics Homepage: http://www.dynare.org/sebastien Landline phone: +33 1 40 77 49 90 SIP phone: sebastien.villemot(a)ekiga.net PGP Key: 0xA6C029B9D06B2913D71C105EBE37E801FB6EFF8B (http://pgp.mit.edu/)

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[Dynare-l] MONFISPOL workshop
by Michel Juillard 07 Feb '10

07 Feb '10

The European Research (FP7) project MONFISPOL (www.monfispol.eu), to which Dynare is associated, is organizing a workshop on Optimal Monetary and Fiscal Policy in Stresa, Italy, on March 11 and 12, 2010. The program includes: * E. Faia and R. Winkler "Fiscal policy with Search and Matching Frictions" * A. Marcet TBA * N. Iskrev and M. Ratto "Identification in DSGE models" * P. Levine and J. Pearlman "Endogenous Persistence in an Estimated DSGE model under Imperfect Information" * S. Schmidt "A New Comparative Approach to Macroeconomic Modeling and Policy Analysis: Current State" * M. Juillard " Computing Optimal Policy with Dynare" Location: Grand Hotel des Iles Borromees Corso Umberto I, 67 28838 Stresa Italy Transportation from Malpensa Airport will be arranged. People interested in participating to the workshop should contact hanane.bahala(a)ens.fr with kind regards, Michel

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[Dynare-l] DYNARE NEWS
by Michel Juillard 17 Jan '10

17 Jan '10

Dear Friends, the Dynare team wishes you a very happy new year! Here are some news: * the 6th DYNARE CONFERENCE will be hosted by the Bank of Finland in Helsinki, June 3-4, 2010. Plenary speakers will be Fabio Canova and Tom Sargent. The call for paper is available at http://www.dynare.org/events/6th-dynare-conference. Deadline for submission: February 15, 2010. * the DYNARE SUMMER SCHOOL will take place in Paris, June 28-July2, 2010. Roger Farmer will be guest lecturer. Details are available at http://www.dynare.org/events/dynare-summer-school-2010. Deadline for application: March 31, 2010. * the 16th International Conference on Computing in Economics and Finance, will take place at the City University of London, July 15-18, 2010. As previous year, we will organize DSGE modeling sessions. If you want to participate assign your submission to Michel Juillard. Details for the Conference are available at http://www.city.ac.uk/economics/SCE/ Deadline for submissions: January 31, 2010 * We have released Dynare 4.1.0.The most noticeable new features are: * Third order approximation of stochastic models * Faster computation of deterministic simulations and steady state on big models (using block decomposition) * Support of estimation with missing observations (/i.e./ some variables may not have observable data at all periods) * Incorporation of the Anderson-Moore Algorithm (AIM) <http://www.federalreserve.gov/Pubs/oss/oss4/aimindex.html> to compute the decision rules, as an option * Leads and lags are now allowed on exogenous variables * New operator to specify steady state value of a variable inside the model * New operator to take the expectancy of a variable at another date than the current one * Possibility of creating a LaTeX output file containing the model equations All users are therefore strongly encouraged to upgrade to this new version. More details at http://www.dynare.org/news/release-of-dynare-4.1.0 * During 2009, we have migrated the server to http://www.dynare.org. Notice that the download section has changed and that "News" and "Events" are now in two separate sections of the web site. Cheers, Michel

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[Dynare-l] upcoming conferences
by Michel Juillard 25 Jan '09

25 Jan '09

1) The 15th International Conference on Computing in Economics and Finance takes place in Sydney, Jul 15--17, 2009. See http://www.cef.uts.edu.au/ We will organize sessions on DSGE models and Dynare modeling. Please submit you abstract with a description of the computational content of your paper BEFORE January 31st at https://editorialexpress.com/cgi-bin/conference/conference.cgi?action=login… On the eve of the conference, on July 13th, there will be a one day Dynare workshop (free of charge for conference participants) 2) Computational Management Science Conference, Geneva, May 1-3, 2009. http://www.cms2009.unige.ch/ We will try to organize one or two session on DSGE modeling. If you are interested in participating, please send me an abstract. All the best, Michel

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