Increase in Output

I try to replicate an extended version of Iacoviello Model. In the model, there is a spread between lending and borrowing rates, which is a fraction itself as well. I didn’t understand why output increases following a monetary policy shock. According to the original mechanism, an increase in the deposit rate should give rise to a higher increase in the borrowing rate. Can anyone have a look at the files? Thank you.original.mod (2.2 KB) originalparameter.m (1007 Bytes)

Maybe check the signs of your equations. I changed equation 3 FROM “ c=betae*rbs*(c(+1)-rb+infl(+1)) - (1-betae*rbs)*lamb” TO “c=betae*rbs*(c(+1)-rb+infl(+1)) + (1-betae*rbs)*lamb” by replacing minus with plus for the coefficient of lamb. Not sure about your model, but maybe it is plus. And from the IRFsoriginal_IRF_eps_r.eps (47.2 KB) a contractionary monetary policy shock leads to a decrease in output in period 0.

Btw, you should edit your mod file since the load doesn’t work. You wrote load originalparameterinstead of load originalparameters.

Hi Emmanuel,
Thank your for your reply. I checked the sign once again, it should be minus. As you stated, output decrases in period 0 following the shock, but then it suddenly begins to increase, which is inconsistent with what the original paper gives.

Can you replicate the original paper before doing any extensions?

The original paper which I try to replicate is an extended version of the Iacoviello model Professor. I didn’t add any extra.

I see. So the problem is that you cannot replicate an existing paper? Usually that means rechecking your implementation and whether the original paper has mistakes/typos.