I run into a problem using Dynare and hope you can kindly help me out.
The model has two types of firms constrained by their land value and earnings when borrowing from savers. I think the model is standard. The problem is the IRFs are oscillating when I introduce capital adjustment costs. Without adjustment costs, the IRFs are normal.
I learned from the forum that the typical cause could be a timing issue. But I do not think it is the case here since when I set adjustment costs (iotta in the model) to zero, it works. Maybe I am wrong.
I attached the code and file.
Really appreciate it if anyone could help. Thanks!!!