I tried to code JPT’s paper using dynare to analyze the monetary policy in China. I follow Smets and Wouters’s procedure in making this code, and use real money balance instead of nominal interest rate to capture the reality in China. Most of the impulse responses are in the right direction, but I found that a positive technology shock induce a decrease in natural rate of output, total output, investment and consumption. I think that’s not a normal result; but I simply couldn’t find what’s wrong in my code. Could you offer some help? The code is attached.
JPTd.mod (6.04 KB)