I would like to maximize firm’s profit in nonlinear SOE model. But when I use nominal profit, the IRF of real wage is werid. The nominal profit function is as follows:
where MC is nominal marginal.
And the auxiliary function is: (mc is real marginal cost)
Thanks for your reply, Prof Pfeifer.
Because I found the real wage falls first and then rise, but in linear model, the real wage falls and persist for a long time.
Did you check what happens if you use the linearized version of the NKPC instead. That would tell you whether the problem is indeed in that equation.