IRFs NK Baseline model

Stochastic simulations
1

Dear all,

I computed the IRFs of the NK baseline model and have been puzzled by the response of e.g. output to the neutral technology shock.

[name=‘Neutral technology’]
log(mu_A)=LambdaA+sigma_A*epsA;

NK_baseline_IRF_epsA.pdf (4.2 KB)

Why does output react negatively? Isn’t epsA a positive shock to the gross growth rate of neutral technology?

Thank you!

2

See the discussion following

3

Thank you, Johannes! That explanation makes it very clear.