Hi all, I am trying to solve the NK version of Jermann Quadrinni’s (2012) paper with collateral constraints. I modify the constraint to be Kyotaki-Moore style instead of earning constraint. I double-checked my code to make sure that variables have proper timing (in particular capital), but still ge…

I thin I resolved the issue. It was a problem with calibration.

Hi all, I think the main issue in this model is that the nominal prices (price of consumption goods and wages) are moving to a new equilibrium after the monetary shock. And Taylor rule breaks. I have attached the updated code and IRFs. I used the version of the Taylor rule, which only reacts to the…

See e.g. [image] Levels versus Growth Rates Steady state It is well-known that the price level is indeterminate. You can choose any initial level for P and get the same results. A corrolary of this is that the price level has a unit root. While inflation goes back to stead…

Thank you! I get it now. Another question:what can be a reason that the original Taylor rule doesn’t work, while a simplified version works? When I switch to the rho_R*(r_taylor(-1)-steady_state(r_taylor))+(1-rho_R)*nu_1*(P-P(-1))+((1-rho_R)*nu_2+nu_3)*(Y-steady_state(Y))-nu_3*(Y(-1)-steady_state…

That’s hard to tell. But the determinacy/stability region can be complicated in larger models.

Also, I notices that although all real variables are going into the write direction, the Price and Wage go in opposite. An increase in real interest rate leads to an increase in inflation. Can it be the results of altered taylor rule, or something is definitely wrong in the model?

That indeed sounds a bit strange. But it’s hard to tell whether it’s a feature of the model or a bug. Have you tried moving your model more closely to the original model, e.g. by changing parameters? That may give you new insights.

Jermann Quadrini (2012) with collateral constraints

Stochastic simulations

jpfeifer 22 July 2024 07:46 4

See e.g.