The value of IRF is 0

Stochastic simulations
1

Hi, everyone!
I simulate variable values in third order, the IRF value of terms of trade, exchange rate is 0, but other variables IRF values are normal. I try my best to serval days, but I don’t find the reason.
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2

Check the policy functions at first order. They should show you whether the shocks even affect these variables.

3

Thanks for your reply, Prof Pfeifer.
I check the policy functions at first order, the result shows that shocks do have no effect on REER.
but from the definition of REER:
REER=1/((1-upsilon)*(tau/TOT)^(1-eta_g)+upsilon)^(1/(1-eta_g));
where tau is tariff shock, the shock should actually have an effect on the REER.

The policy function at first order
The policy function at first order972×347 7.89 KB

4

That means that another variable in that relation must move one to one to counteract the effect of tau. Most probably TOT.

5

Thanks for your reply, Prof Pfeifer.
I would like to disturb you again.
I have been checking the model all day.
First, I simplified the model. I introduce tariff shock to Gali chapter 8 model. The shock even affects REER、TOT.
Then, based on chapter 8 model, I introduce search and match. In this case, the shock has no effect.
And I also check equations, the shock only affects terms of trade、CPI/PPI、market clearing, I think the three equations are right, because they have the same formula as baseline model.

I sent baseline model and SAM model code to you via PM. Thanks for your reply in advance.