Rotemberg Pricing in Simple New Keynesian Model


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!
BNK.mod (786 Bytes)

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

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