Taylor staggered contract pricing --oscillating IRFS

I want to replicate the DSGE model in the chapter 3 of Gali textbook. Intstead of Calvo pricing, I’m using taylor contract pricing with N=2. I obtain an oscillating irfs. Could you help me identify the potential source of the problem.
I’m having a hard time to upload the code, but it can be obtained through the link below. I replaced the NK phillips curve equation (row 131) by the following: pi =pi(+1)+(siggma+(varphi+alppha)/(1-alppha))(2y_gap + y_gap(+1)+y_gap(-1) );


You need to find out whether this is an actual feature of the model. The new Phillips Curve in your model with the weighted average of output gaps allows for complex dynamics.
Gali_2015_chapter_3.mod (10.8 KB)

Many thanks Prof. Pfeifer for your reply.

How to check whether Taylor pricing can be a feature of the model? I was thinking that either Taylor or Calvo pricing can be used to account for nominal rigidity in a DSGE model. My objective is to see the difference in the IRFS from Calvo vs Taylor pricing.


But are you sure your Taylor pricing FOC is correct? Take a look at e.g. https://web.stanford.edu/~johntayl/Spring2013PhDclass/7_Staggered_Pricing_NKE

I think the derivation is correct. I followed Luca Guerrieri paper titled THE INFLATION PERSISTENCE OF STAGGERED CONTRACTS (see attached).
ifdp734.pdf (307.6 KB)

Shouldn’t there be some EXPECTATION(-1)() term?

Yes, using the expectation term does not change the result. I found out that the problem might probably be related to the value of the parameters.

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