Sigma_e

Sigma_e — specifies directly the covariance matrix of the stochastic shocks

Synopsis

Sigma_e = [ EXPRESSION [[,] EXPRESSION...] [; EXPRESSION [[,] EXPRESSION...]...] ];

Warning

The matrix elements are actually written between square brackets ([]). Here, the initial [ and final ] don't have the meaning of optional element as elsewhere.

Description

The matrix of variance-covariance of the shocks can be directly specified as a upper (or lower) triangular matrix. Dynare builds the corresponding symmetrix matrix. Each row of the triangular matrix, except the last one, must be terminated by a semi-colon ;. For a given element, an arbitrary EXPRESSION is allowed (instead of a simple constant), but in that case you need to enclose the expression in parentheses. The order of the covariances in the matrix is the same as the one used in the varexo declaration.

Example

varexo u, e;
...
Sigma_e = [ 0.81 (phi*0.9*0.009); 0.000081];
    

where the variance of u is 0.81, the variance of e, 0.000081, and the correlation between e and u is phi.