Tariff volatility shocks in SOE don't get to steady state

Hello everyone:
I try to add tariff uncertainty to nonlinear small open economy model.
Although the code can run, but the result is obviously wrong.
(The model based on Gali Chapter 8 third order)

(1)oo.stochastic_steady_state does not converge.
(2)the impluse response graph of Y, C is up to 10^5. the variable value of “variables_irfss” is big.
I don’t know why the results is so big.

  1. You did not provide the sss-function.
  2. The underlying level shock has a variance of 1, i.e. a 1 standard deviation shock doubles tau from 1 to 2. That causes the large numbers.

I see you had replicated Basu/Bundick (2017): Uncertainty shocks in a model of effective demand", all level shock has a 1 standard deviation shock as following,other economists also set the standara deviation of the level shock to 1.

Basu level shock

I think the level shocks should: var eps_sigma_a; stderr 0.002; var eps_a; stderr 0.01; I don’t understand why stderr set to 1.

Yes, but their process is

[name='Preference shock process level equation']
[name='Preference shock volatility process']

so that the shock term has standard deviation sigma_a_bar with sigma_a_bar =0.0026251;

You have sigma_tau_bar=1;