- @Adiya1234 It is almost never a good idea to manually linearize by hand except for gaining intuition. Linearization is an error-prone step that the computer does better than humans.
- The drop in interest rates after monetary policy shocks is not uncommon. See my reply at Inconsistent IRFs: Mixing log() and Level Equations in Dynare Model Block? - #2 by jpfeifer
- Of course, one cannot exclude that is it caused by wrong equations or timing errors. Shock magnitudes are irrelevant in models solved at first order.
- I would play around with parameter values to get a better sense for the working of the model.