Permanent Response from Transitory Shocks

Dynare help (legacy posts)
1

Hello everyone,

I’m having a peculiar problem with my .mod file in that I’m getting permanent effects on some variables from temporary shocks. I haven’t been able to find anything wrong with the model, so I figured I’d see if someone could spot something. Specifically, the shocks a, ap, and xd are giving me permanent responses when the stochastic process is stationary. Any help would be greatly appreciated.
Penny.mod (5.46 KB)

2

They are not permanent, just hugely persistent. You can see this when you set irf=1000. The reason is that you have an eigenvalue of 0.9997 in your model.