Dear all,

I am doing an exercise about RBC model with investment adjustment costs. Please see the pdf file for the model: rbc_model.pdf (106.8 KB)

I solved the model and use equations in part B) in the following mod file.

rbc_adjustment_costs.mod (1.1 KB)

My problem is, the IRF are not the things I expected. If we have investment costs, then firms tend to gradually increase their investment over time so the IRF of investment should be hump-shaped. But it is not the case in this exercise. Unfortunately, I cannot find any problem in my derivation and code (even in this simple exercise).

I would really appreciate if anyone could help me. Many thanks!