Rotemberg Pricing in Simple New Keynesian Model

Dynare help (legacy posts)
1

Hello,

I’ve been trying to get a simple New Keynesian model with Rotemberg pricing working, but the IRF’s are strange. It’s hard to explain, but I guess I could say that they are “spiky”. I’ve attached the mod file and the IRF for the monetary policy shock (e_i in the mod file) so you can see if I’ve done anything blatantly wrong with the FOC’s or calibration or something.

Thanks in advance!
https://dl.dropboxusercontent.com/u/92766758/Weird%20IRF.png
BNK.mod (786 Bytes)

2

Also, the problem seems to go away if I switch to a first order approximation of the model.

3

That’s because at order>1 we are talking about generalized impulse responses. Either increase replic or use pruning or use order=1.