I have been trying to introduce labour and goods market segmentation into a Small Open Economy New Keynesian model.
The model is log-linearized around a steady-state; I managed to solve it though there are warnings about the accuracy of results.
The problem I am currently facing is that the IRFs, though most of them have the desired sign (in the direction of response to shocks),
most of them do not converge to zero after the shock.I could not figure out what I did wrong.
I am greatful to any tip; I attached a reasonable commented .mod file.
Thank you so much in advance.
Sisay_OENK.mod (7.18 KB)