I have a problem with the model I am working on with respect to the effect of a monetary policy shock. I reduced my model to a very simple basic one since the problem is at the basis of what I’m doing, and I am attaching the code. I have consumers whose utility is logarithmic in C, firms producing according to a constant return technology and sticky prices à la Rotemberg.
The equations and derivation I think are correct, but given the result I am sure that I made some kind of silly mistake.
To be clear I tell you the things I do not understand:
-When I positively shock the Taylor Rule the nominal rate (which I call rf) goes down
- Inflation moves in the same direction, the final effect I think works as an increase in the real rate and therefore is contractionary.
What am I getting wrong?
Thank you in advance for your replies.
FORUM.mod (1.23 KB)