Unexpected negative output response to technology shock

Stochastic simulations
1

Dear community,

Hello. I am new to DSGE and Dynare, and I am working on a model that incorporates the financial accelerator, drawing from Christensen and Dib (2008) and CMR (2014).

I’ve encountered some strange results in the IRFs: for example, a positive technology shock (eta_A) leads to a negative initial response of output (y).

Figure 5 - Orthogonalized shock to eta_A figure 1
Figure 5 - Orthogonalized shock to eta_A figure 11120×840 38.8 KB

I suspect this may be due to a timing mistake in the codes, but after carefully checking the equations, I haven’t been able to identify the problem. I have also consulted these related posts: Production negatively react to technology shock, Why the starting point of the technology shock to output is negative, and have simplified the model as much as possible, but the issue persists.

I would be very grateful for any suggestions on how to diagnose and correct this issue. I have attached my codes for computing the steady state and the .mod file:
Steady state:
ss_get.m (6.5 KB)
ss_get_func4.m (1.5 KB)
Model:
model.mod (13.8 KB)

Thank you very much for your help!

2

Why is capital not predetermined in your model, e.g. in the production function?

3

Hello Professor @jpfeifer , thanks for your reply. Capital is not predetermined in my model because in the reference papers, Christensen and Dib (2008) and CMR (2014), it seems that capital is not predetermined. I have also tried to have capital predetermined by changing k to k(-1) in the production function and the firm’s FOC of capital (code: model1.mod (13.8 KB)
), but then the IRFs do not change.

4

Then that is likely your problem. The Christensen and Dib paper is not very consistent in outlining the proper timing.

5

Thank you for your suggestion, Professor. I am aware of some issues in the timing of the Christensen and Dib paper. I will keep checking.