Dynamic and steady state under second order approximations

[jpfeifer]

Depending on the model, precautionary savings can push the interest rate down. But what you describe sounds strange overall. Are you sure the shock scaling is correct. See e.g.

Shocks for IRFs in a third order approximation

At higher order, there is a difference between the shock volatility, which will determine the stochastic steady state and the ergodic mean, and the shock size for an IRF. For the first one you need to choose realistic values. For example log(R/R_ss)=rho_r*log(R(-1)/R_ss)+rho_p*log(pi/pi_ss)+rho_y*log((y/y(-1))*(g(-1)/g_ss))+sigma_r*epsilon_r ; with sigma_r=1 and shocks; var epsilon_r = 1; end implies that monetary policy shocks on average move the log quarterly interest rate by 1, which is a…