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 time. I attach my codes.
DSGE_Corsetti.mod (6.7 KB)
Did you search the forum, e.g. Third order perturbation
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.
Thank you for your clarification!