function time_series = extended_path(initial_conditions,sample_size) % Stochastic simulation of a non linear DSGE model using the Extended Path method (Fair and Taylor 1983). A time % series of size T is obtained by solving T perfect foresight models. % % INPUTS % o initial_conditions [double] m*nlags array, where m is the number of endogenous variables in the model and % nlags is the maximum number of lags. % o sample_size [integer] scalar, size of the sample to be simulated. % % OUTPUTS % o time_series [double] m*sample_size array, the simulations. % % ALGORITHM % % SPECIAL REQUIREMENTS % Copyright (C) 2009-2013 Dynare Team % % This file is part of Dynare. % % Dynare is free software: you can redistribute it and/or modify % it under the terms of the GNU General Public License as published by % the Free Software Foundation, either version 3 of the License, or % (at your option) any later version. % % Dynare is distributed in the hope that it will be useful, % but WITHOUT ANY WARRANTY; without even the implied warranty of % MERCHANTABILITY or FITNESS FOR A PARTICULAR PURPOSE. See the % GNU General Public License for more details. % % You should have received a copy of the GNU General Public License % along with Dynare. If not, see . global M_ options_ oo_ options_.verbosity = options_.ep.verbosity; verbosity = options_.ep.verbosity+options_.ep.debug; % Prepare a structure needed by the matlab implementation of the perfect foresight model solver pfm = setup_stochastic_perfect_foresight_model_solver(M_,options_,oo_,'Tensor-Gaussian-Quadrature'); exo_nbr = M_.exo_nbr; periods = options_.periods; ep = options_.ep; steady_state = oo_.steady_state; dynatol = options_.dynatol; % Set default initial conditions. if isempty(initial_conditions) initial_conditions = oo_.steady_state; end % Set maximum number of iterations for the deterministic solver. options_.simul.maxit = options_.ep.maxit; % Set the number of periods for the perfect foresight model periods = options_.ep.periods; pfm.periods = options_.ep.periods; pfm.i_upd = pfm.ny+(1:pfm.periods*pfm.ny); % keep a copy of pfm.i_upd i_upd = pfm.i_upd; % Set the algorithm for the perfect foresight solver options_.stack_solve_algo = options_.ep.stack_solve_algo; % Set check_stability flag do_not_check_stability_flag = ~options_.ep.check_stability; % Compute the first order reduced form if needed. % % REMARK. It is assumed that the user did run the same mod file with stoch_simul(order=1) and save % all the globals in a mat file called linear_reduced_form.mat; dr = struct(); if options_.ep.init options_.order = 1; [dr,Info,M_,options_,oo_] = resol(1,M_,options_,oo_); end % Do not use a minimal number of perdiods for the perfect foresight solver (with bytecode and blocks) options_.minimal_solving_period = 100;%options_.ep.periods; % Initialize the exogenous variables. make_ex_; % Initialize the endogenous variables. make_y_; % Initialize the output array. time_series = zeros(M_.endo_nbr,sample_size); % Set the covariance matrix of the structural innovations. variances = diag(M_.Sigma_e); positive_var_indx = find(variances>0); effective_number_of_shocks = length(positive_var_indx); stdd = sqrt(variances(positive_var_indx)); covariance_matrix = M_.Sigma_e(positive_var_indx,positive_var_indx); covariance_matrix_upper_cholesky = chol(covariance_matrix); % (re)Set exo_nbr %exo_nbr = effective_number_of_shocks; % Set seed. if options_.ep.set_dynare_seed_to_default set_dynare_seed('default'); end % Set bytecode flag bytecode_flag = options_.ep.use_bytecode; % Simulate shocks. switch options_.ep.innovation_distribution case 'gaussian' oo_.ep.shocks = randn(sample_size,effective_number_of_shocks)*covariance_matrix_upper_cholesky; otherwise error(['extended_path:: ' options_.ep.innovation_distribution ' distribution for the structural innovations is not (yet) implemented!']) end % Initializes some variables. t = 0; % Set waitbar (graphic or text mode) hh = dyn_waitbar(0,'Please wait. Extended Path simulations...'); set(hh,'Name','EP simulations.'); % hybrid correction pfm.hybrid_order = options_.ep.stochastic.hybrid_order; if pfm.hybrid_order oo_.dr = set_state_space(oo_.dr,M_,options_); options = options_; options.order = pfm.hybrid_order; pfm.dr = resol(0,M_,options,oo_); else pfm.dr = []; end % Main loop. while (t