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Distributional dynamics under smoothly state-dependent pricing (JME, 2011)

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pricing

Program files for "Distributional Dynamics under Smoothly State-Dependent Pricing", Bank of Spain working paper 0831, December 2008, (C) James Costain and Anton Nakov

OPERATING PROCEDURE

  1. Run "gedyn.m" to compute general equilibrium dynamics; Impulse-responses are computed automatically

  2. Run "vd.m" to compute the variance decomposition and estimate Phillps curve coefficients

The default setting is a Taylor rule. To switch to a money growth rule, set "phiPI" to 0 in "gedyn".

The default model is SSDP. To change the model, change "adjtype" in "gedyn".

COMPUTATIONAL DETAILS

General equilibrium steady state calculation requires a few seconds on an ordinary Pentium 4 with 3Ghz CPU and 1GB of memory.

Calculation of the dynamics requires approximately 2-3 minutes. This is hard to speed up since the bulk of the time (the slowest step) is spent on the QZ decomposition, which uses the in-built MATLAB function qz.

LIST OF ALL PROGRAM FILES

adjustment - Computes adjustment probability as a function of the gain from adjustment

calcstats - Computes steady-state statistics

compute_IRFs - Computes dynamic paths as a function of initial state and shocks (Taylor rule)

compute_IRFsM - Computes dynamic paths as function of initial state and shocks (money rule)

disclyap - Solves discrete Lyapunov equation

distsim - Computes impulse-responses based on Klein's state-space solution

dyneqklein - Defines equations of stochastic model (Taylor rule)

dyneqkleinM - Defines equations of stochastic model (money rule)

dynsolveklein - Solves dynamic general equilibrium (Taylor rule)

dynsolvekleinM - Solves dynamic general equilibrium (money rule)

estparam - Sets idiosyncratic shock and adjustment function parameters

ExpectMenuCost - Expected menu cost in SMC model

findPEVfun - Finds partial equilibrium steady-state value function for a given wage

gedyn - Main program for computing general equilibrium dynamics

hazard - Computes the adjustment hazard function after an initial price change

histpchanges - Computes the histogram of price changes

histsimaggidio - Simulates price histories with idiosyncratic productivity shocks

hpfilter - Extracts the Hodrick-Prescott trend of a time series

infdecomp - Decomposes inflation into intensive, extensive, selection effects

infparam - Loads alternative gross money growth rates

irf - Computes and plots impulse-response functions

jacob_reiter - Computes Jacobian by forward differences

kleinsolve - Implements Klein's QZ decomposition method for solving linear RE models

ks - Computes Kolmogorov-Smirnov statistic for equality of two cdf's

lamcontin - Approximates lambda in the menu cost model with a continuous function

M_pStar - Computes value function maximum and argmax with quadratic interpolation on V

makegrids - Builds productivity and price grids in logs

optimprint - Prints current parameter vector at each iteration of the estimation procedure

param - Sets program execution and macro model parameters

Pdist_iter - Computes the stationary distributions of firms before and after shocks

Pidentity - Function called by fzero to find the general equilibrium steady-state

plot_IRFs - Plots impulse-response functions

plotfigs - Plots figures of steady-state objects

Pmatrix - Calculates matrix P which rounds stochastically to two grid points around the optimal price

printstats - Prints out steady-state statistics

progreport - Reports convergence statistics

Rmatrix - Calculates the transition matrix R

setmat - Initializes matrices based on guess for wage=wflex

sizepchtime - Computes the evolution of the mean absolute price change after an initial adjustment

tauchen - Converts a VAR(1) into a Markov-Chain using Tauchen's method

taylor - Taylor rule

V_iter - Solves value function by iteration on a grid with interpolation

vd - Computes variance decomposition and Phillips curve regression

We thank Elmar Mertens for the code that implements Tauchen's method for approximating AR1 by a finite-state Markov process available on his website http://www.elmarmertens.ch/

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Distributional dynamics under smoothly state-dependent pricing (JME, 2011)

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