Impulse response shows strange V-shape

Stochastic simulations
1

Hi all,

I’m working on a DSGE model in Dynare and encountered a strange issue with the impulse response functions. When I simulate an orthogonal shock to one of the exogenous processes (specifically e_AF and e_AG), I find that the impulse responses of output (y) and its components (yp, yg, and yf) all exhibit an unusual V-shaped pattern: they initially drop sharply and then gradually recover, even though the shock is positive. Is this pulse chart trend normal? What causes this result?

image
image1555×1315 198 KB

rbc.mod (3.9 KB)

2

That is hard to tell. Usually, there are two possibilities:

  1. It is a model feature that comes from agents only being able to fully react with a log, e.g. due to capital being predetermined and only reacting strongly after one period.
  2. It is a bug where you introduced a timing error that makes variables predetermined that should react immediately.
3

OK, Professor, I’ll try it now.