Monetary Policy

Hello everybody,

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)

There may be a mistake somewhere, but given that inflation falls by that much as in your graph, the nominal interest may actually decrease, see [Monetary Shock)

Thanks you for your reply.
I guess in this case it was the autoregressive coefficient of the monetary policy shock.
If I’m not mistaken it should be pretty low if not zero, right?
In this case I solved it but still have problems in another bigger model…
anyway…I’ll figure it out…