Have you ever come across such IRFs that oscilate or alternate around the steady state(zero) before finally converging? Does it mean the model is unstable or sth? I am concerned about such kind of IRFs. I don’t know how to interpret it or how it comes into being . Could anyone kindly help? Many thanks in advance.
It means that there is a complex eigenvalue leading to oscillations. Usually, when people have this problem in the forum, it comes from them ignoring the Dynare timing convention and then torturing the timing until the BK conditions are satisfied. When doing so, the correct economic timing is ignored and oscillating IRFs result.
I proposed a very simple model. a Borrower and Saver model + durable and non-durable goods. Borrower borrows, loan rate depends on durable goods. capital is used in the production of non-durable goods, capital is owned by Saver. Very standard setout.
when I exclude capital, the model works, but when I include the capital, the irfs starts to oscillate.
Pls see attached. Could you pls help me on this. Thanks a lot. BEK.mod (5.1 KB)