Hi everybody

I am working on Gali, 2008, ch.6.

Is the following code suitable for simulating a 25 basis points increase (annualized=1 percent) in the exogenous component of the interest rate rule?

The IRFs that I get are almost identical to those in the book,except for price inflation, which fall less than it should.

Thanks in advance

var x y n yn i pip piw rn w wn v a;

varexo eps_v eps_a;

parameters alpha gammap gammaw sigma beta phi thetap thetaw psinya psinwa kappap kappaw lambdap lambdaw rho phip rhoa rhov ew ep;

alpha = 1/3;

sigma = 1;

gammap = 1/5;

gammaw = 1/5;

ew = (1+gammaw)/gammaw;

ep = (1+gammap)/gammap;

thetaw = 3/4;

thetap = 2/3;

beta = 0.99;

phi = 1;

rho = 1/(beta-1);

phip = 1.5;

rhoa = 0.9;

rhov = 0.5;

psinya = (1+phi)/(sigma*(1-alpha)+phi+alpha);

psinwa = (1-alpha*psinya)/(1-alpha);
lambdap = ((1-thetap)*(1-beta

*thetap)/thetap)*((1-alpha)/(1-alpha+alpha

*ep));*

lambdaw = ((1-betathetaw)

lambdaw = ((1-beta

*(1-thetaw))/(thetaw*(1+ew

*phi));*

kappap = lambdapalpha/(1-alpha);

kappap = lambdap

kappaw = lambdaw*(sigma + phi/(1-alpha));

model(linear);

x = x(+1) - (1/sigma)*(i - pip(+1) - rn);
x = y - yn;
yn = psinya*a;

y = a + (1-alpha)

*n;*

rn = sigmapsinya*(rhoa - 1)

rn = sigma

*a;*

pip = betapip(+1) + kappap

pip = beta

*x + lambdap*(w-wn);

piw = beta

*piw(+1) + kappaw*x - lambdaw*(w-wn);

w = w(-1) + piw - pip;

wn = psinwa

*a;*

i = rho + phippip + v;

i = rho + phip

v = rhov

*v(-1)+eps_v;*

a = rhoaa(-1)+eps_a;

a = rhoa

end;

shocks;

var eps_a; stderr 0;

var eps_v; stderr 0.25;

end;

resid(1);

steady;

check;

stoch_simul(order=1,irf=12) pip piw x i;