Shock Interpretation


Sorry for a dumb question. But I confused and I’ve needed some clearance. Shocks like that:

varexo eps_m;

parameters RHO_M;


m = RHO_m *m(-1) + eps_m ;

var eps_m; stderr STDERR_m;

how should I interpret? One standard deviation shock to m, or %10 standard deviation shock to m, or?

Secondly, I obtain approximately 0.005 response from c, is it normal or very small?

Thank you all.

Are you talking about the interpretation of the IRFs shown by Dynare?

Yes, dear Professor. I try to interpret irfs of the shock.

Dynare will by default generate the IRFs to a one standard deviation shock. In your case, the standard deviation is 0.1. If m is measured in percent, then the shock will be 10%. The interpretation of the IRF of c depends on the units in which c is measured. Regarding size: your are the model builder and are the only one who can have an idea what to expect from the model.