Do my IRFs make sense? Simple OLG model

[san.aung]

Hi,

I am trying to run IRFs for an interest rate shock. My model is the analytically tractable OLG model of Gertler 1999: Government Debt & Social Security in a Life-Cycle Economy. Does it make sense that my IRFs fluctuate around the initial steady state before gradually falling back to initial equilibrium? I ask because the IRFs that I have seen so far usually are smooth curves.

Gertler1999.mod (1.9 KB)

Sincerely,
San

[jpfeifer]

See

Oscilating or alternating IRFs

It means that there is a complex eigenvalue leading to oscillations. Usually, when people have this problem in the forum, it comes from them ignoring the Dynare timing convention and then torturing the timing until the BK conditions are satisfied. When doing so, the correct economic timing is ignored and oscillating IRFs result.

[san.aung]

Thank you. There must be something wrong with my timings then. Will recheck. Would log-linearising the model sometimes help? (Suppose my timings are correct…)

Sincerely,
San

[jpfeifer]

No, log-linearizations usually just introduce more mistakes.