Variables do not respond to shocks


I have included three additional shocks (preference shock, discount factor shock, and interest rate shock) to Dynare’s model of Prof. Johannes Pfeifer (
I checked the timing everything seems correct.
As a result,

  1. only few variables respond to preference and discount factor shocks.
  2. IRFs to interest rate shock have abrupt regions.

Please give me some suggestions how to get correct IRFs.
CSEdynare.mod (4.5 KB)

How is the shock process supposed to look like? Your implementation looks rather strange.

Dear @jpfeifer, thank you for your comment. I checked the model again and this time I tried to include only two additional shocks (preference shock and interest rate shock). I included preference shock to utility function (as in some papers) and derived “new FOCs” (my FOCs did not change much except for the preference variable {u_t}). But still only few variables respond to preference shock, I do not have such problems with technology or interest rate shock. Could you please give more suggestions?
CSEdynare2.mod (4.3 KB)

I think it has to do with your specification. You can verify that the shock only distorts the intertemporal margin, but no the labor margin. So it seems to be a feature of your model.

Dear @jpfeifer, thank you for your suggestion. I understood your comment, but I could not find any information on how can I verify that shocks only distort intertemporal margin. Also, to make shock distorts the labor margin, should I change the model itself?

If you look at the labor FOC, the shock appears on both sides and can be canceled. It’s a matter of what you want to achieve. Sometimes the preference shock only affects consumption. In that case, it will distort both margins directly.