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| Original file line number | Diff line number | Diff line change |
|---|---|---|
| @@ -1,25 +1,50 @@ | ||
| \begin{enumerate} | ||
| \item[2. and 3.] The mod file might look like this: | ||
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| \item[2.~and 3.] | ||
| The mod file might look like this: | ||
| \lstinputlisting[style=Matlab-editor,basicstyle=\mlttfamily\scriptsize,title=\lstname]{progs/replications/Baxter_King_1993/Baxter_King_1993_figure_3.mod} | ||
| \item[4.] No, for many reasons. To name just two: | ||
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| \item[4.] | ||
| No, for many reasons. To name just two: | ||
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| \begin{itemize} | ||
| \item A war is a large shock with unknown duration. | ||
| Perfect foresight simulations do not capture this as in period 1 everything is revealed to the agents. | ||
| A solution to this would be a perfect-foresight simulation with expectation errors (sometimes called MIT-shock). | ||
| To this end, one simulates the sequence of shocks but alters the information set of the agents in each period before the onset of another shock. | ||
| Algorithmically, we repeat the simulation cycle four times and then combine the simulations, | ||
| utilizing the first one for periods $1$ to $2$, the second one for $2$ to $3$, the third one for $3$ to $4$ ..., and the fourth one for $4$ to $T$. | ||
| In Dynare 6.0 there is a new command for such a simulation called ``perfect foresight with expectation errors''. | ||
| For older versions of Dynare this type of simulation can be done by running a sequence of perfect foresight simulations while adjusting initial conditions manually. | ||
| Intuitively, this captures the belief that guides agents during times of war; | ||
| namely that the conflict will last only one year (the surprise shock on impact) and will not occur again. | ||
| However, this belief is challenged when the war continues beyond the expected duration, | ||
| and agents are surprised by the ongoing conflict (restart the simulation with a new surprise shock in the next period). | ||
| Despite this surprise, the belief in a one-year duration persists, leading to ongoing cycles of surprise shocks (and expectation errors). | ||
| \item A war shock has many channels; solely relying on a demand-side effect via government spending reflects a very US-specific view. | ||
| There is some research that war shocks are rather dominated by supply-side effects | ||
| and also accompanied by different policy stances during war times. | ||
| One could argue that the current simulation is for a neighboring country, | ||
| the US being mostly a very distant country to warsites. | ||
|
|
||
| \item | ||
| A war is a large shock with unknown duration. | ||
| Perfect foresight simulations do not capture this as in period 1 everything is revealed to the agents. | ||
| A solution to this would be a perfect-foresight simulation with expectation errors (sometimes called MIT-shock). | ||
| To this end, one simulates the sequence of shocks | ||
| but alters the information set of the agents in each period | ||
| before the onset of another shock. | ||
| Algorithmically, we repeat the simulation cycle four times | ||
| and then combine the simulations, | ||
| utilizing the first one for periods \(1\) to \(2\), | ||
| the second one for \(2\) to \(3\), the third one for \(3\) to \(4\) \ldots, | ||
| and the fourth one for \(4\) to \(T\). | ||
| In Dynare 6.0 there is a new command for such a simulation called | ||
| \texttt{perfect{\_}foresight{\_}with{\_}expectation{\_}errors}. | ||
| For older versions of Dynare this type of simulation can be done | ||
| by running a sequence of perfect foresight simulations | ||
| while adjusting initial conditions manually. | ||
| Intuitively, this captures the belief that guides agents during times of war; | ||
| namely, that the conflict will last only one year | ||
| (the surprise shock on impact) and will not occur again. | ||
| However, this belief is challenged when the war continues beyond the expected duration, | ||
| and agents are surprised by the ongoing conflict | ||
| (restart the simulation with a new surprise shock in the next period). | ||
| Despite this surprise, the belief in a one-year duration persists, | ||
| leading to ongoing cycles of surprise shocks (and expectation errors). | ||
|
|
||
| \item | ||
| A war shock has many channels; | ||
| solely relying on a demand-side effect via government spending | ||
| reflects a very US-specific view. | ||
| There is research that war shocks are rather dominated by supply-side effects | ||
| and also accompanied by different policy stances during war times. | ||
| One could argue that the current simulation is for a neighboring country, | ||
| as the US has never really been a war site itself | ||
| (except for comparably minor battles of Pearl Harbor and the Aleutian islands | ||
| during World War II). | ||
| \end{itemize} | ||
|
|
||
| \end{enumerate} |
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