DSGE with simple adaptive learning rule

Estimation
1

Hi everyone,
I’m trying to work with a small open economy DSGE model where I introduce a simple adaptive learning rule to form expectations of variables. Using this simple learning rule, I get oscillating IRFs, and I wonder whether that’s a reason to avoid estimating and using such a model? What implications do oscillating IRFs have? Any suggestions on what to do?

The code is attached for anyone interested: JPae2.mod (4.7 KB)

2

Oscillations like that are hard to justify economically. They indicate a complex eigenvalue. Usually that comes from timing problems. As the problem comes from your learning rule, it indicates that the learning rule you are using is not economically stable.

3

Ok, I’ll see if I come up with something else then. Thanks for answering!