Negative shock in the Taylor Rule of a NK DSGE

I want to give a negative shock straight to the interest rate, as a discretionary policy. Not changing the monetary base, but emulating a rule from the central bank.

The questions are:
Shall I make “i” completely exogenous or give a shock to the Taylor Rule?
How do I give negative monetary shocks in a basic DSGE NK model from Galí (2008)?

DragoT.mod (3.3 KB)

You could simply change the sign of the monetary policy shock eps_v, i.e.

v = rho_v*v(-1) - eps_v

Then running stoch_simul will give you a negative shock.

1 Like

I’ve tried that before, it wasn’t working but now it did. Thank you very much!