Hello, everybody,

I am a beginer of dynare and I have a question about the interpretation of the IRF ( Impulse Response Function ). All your help is appreciated.

I first took an estimation about my model and got the standard deviation of all shocks. For example, the standard deviation of shock x is 0.18.

In the next step, I run a stoch_simul() command to get the IRF graphs. Of course I input codes in the shock block like:

shocks;

var x; stderr 0.18;

end;

then I can get a series of IRF graphs. The horizontal axis of IRF graph means period(year or quarter). My question is how to interpret the vertical axis of those graphs. For example, after one standard errorâs shock x, if the output Y increases to 0.67 in period 5, there are two interpretation about 0.67. (1) Output Y increased by 67% in period 5. (2) Output Y increased by the number which is 0.67 times one standard error of shock x, that is to say, 0.67*0.18=0.1206, so output Y increased by 12.06% in period 5. So which explanation is right?

If I use relative_irf command, then I input codes in the shock block like:

shocks;

var x; stderr 0.01;

end;

Does it mean that the magnitude of the shock is 1%?

After that, I can also get a series of IRF graphs but the dimension of vertical axis is big. In my case, the output Y increases to 67 in period 5, does it mean that 1%'s shock x leads to 67%'s increase of output or 6700%'s increase?

I am really confused about the interpretation of IRFs. Detailed explanation is greatly appreciated.

Thank you!

Best,

John