Convergence Issue in Simulation

[jrj]

Hello!

I’m trying to running a NK DSGE model with a kinked monetary policy rule. However, when using extended path, I can only get converging results when I reduce the variance of my shocks. Is there any way to fix this issue? When I searched on the forum and I came across this

@jpfeifer

That being said, it is not uncommon for no solution to exist for large shocks.

But I’m unsure why this would be the case.
SIGNUM_3.mod (3.9 KB)

Thanks,
Josh

p.s. just remessaged to add the model file!

[jpfeifer]

Are you using the stochastic extended path? Generally, in nonlinear models no bounded solution may exist for strong linearities and large shocks.