Red lines & Y-axis of Dynare IRFs

Stochastic simulations
1

Hi there,

Apologies for a very basic question, but I’m new to using Dynare, and I am struggling to find resources online to help with my query. My basic issue is that I don’t know how to interpret IRFs. In the following model (taken from Torres Chacon, 2014), I get various graphs, showing the impact on my endogenous variables of an exogenously given shock to e.

More specifically, I’m confused about two things. Firstly, I am unclear about what the red lines in all of the graphs represent. Secondly, I’m unsure how to interpret the y-axis of my graph. I would really appreciate any help that can be offered on this!

model12.mod (1.2 KB)

2

Hi,

Prof. Pfeifer wrote a very instructive paper about graphs in dynare. It is called “An Introduction to Graphs in Dynare” Pfeifer(2014), you should be able to find it here in the forum, as well as on the web.

In short, the red lines are the steady states of your model. As you have non-linear model in your .mod file, dynare does the linearization for you and so the y-axis is absolute deviations from steady state. But again, all this is explained in a much better way in the document.

Cheers