Hi, I would like to add endogenous capital accumulation into Mr. Pfeifer’s Gali Chapter 3 Nonlinear model. (Link: https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Gali_2015/Gali_2015_chapter_3_nonlinear.mod)

I followed Sim’s note on medium scale NK and seemed to have solved out the model ‘correctly’.

However, if I run the model, then the result seems to be very counter-intuitive: the output seems to increase after the preference shock!

There must be some problem in the code / derivation, but I wasted days without spotting any. Can someone help me spotting the problem? Thank you so much in advance!

NK_Capital.mod (3.7 KB)