Hi, I don’t understand why the nominal interest rate, R, does not drop to zero on impact, as it should do. The initial value is R=r_e, where r_e=1/(beta*d)-1. I set a positive discount factor shock, which translates into a shock to d. In the baseline version without capital, r_e becomes negative on impact but, given the zero lower bound, R is set equal to 0. Here, R is equal to its steady value on impact and then start to decrease at time 1. Also the dynamics of other variables are “strange” to me: some of these variables start from their steady state values and exhibit the dynamics I expected only from period 1. Any insight ? Thanks.
Please check the Dynare manual for the unstable version for the timing convention in deterministic simulations. It seems that your are plotting the initial condition at time -1 and take it to be period 0 where the shock hits.