Hello, I have been working on inflicting a volatility shock in a two country New Keynesian DSGE.
I have been using stoch_simul function with order set to 3 for that purpose, and the impulse response functions seem to be wiggly.
I also looked at the example code provided by Professor Pfeifer on his GitHub, and I am having trouble understanding the difference between the two simulation methods.
Could anyone clarify the differences between the two methods, or explain why the IRFs obtained from stoch_simul appear wiggly?
Thank you for your reply. Yes, I have read the discussion in that page, but what I am curious is the reference point that stoch_simul function generates GIRFs from.
If the generated IRFs by stoch_simul are not deviations from the stochastic steady state, as in Basu and Bundick (2017), what do the deviations signify?
The Basu/Bundick ones are (like most papers) at the stochastic steady state (\approx the mean without any shocks). The GIRFs are at the ergodic mean, i.e. the mean with shocks.