Taylor rule with trend inflation and growth
Posted: Thu Feb 21, 2008 3:44 amDear all,
I am simulating a two period Taylor type of contracts model, with both price and wage rigidites, trend inflation and growth at the steady state. The economy is hitten by two shocks; a contractionary monetary shock via a taylor rule and a permanent technology shock. While the signs of IRFs are convincing, it seems that the model does not create that much of dynamic; the interest rate dies after 2 periods when its impact stays for longer time. The problem disappear if I consider a smoothing effect, but I am scared to hide some important problems by doing so.
My .mod file is attached.
Any suggestion or advice?
Thanks a lot,
Lilianne
I am simulating a two period Taylor type of contracts model, with both price and wage rigidites, trend inflation and growth at the steady state. The economy is hitten by two shocks; a contractionary monetary shock via a taylor rule and a permanent technology shock. While the signs of IRFs are convincing, it seems that the model does not create that much of dynamic; the interest rate dies after 2 periods when its impact stays for longer time. The problem disappear if I consider a smoothing effect, but I am scared to hide some important problems by doing so.
My .mod file is attached.
Any suggestion or advice?
Thanks a lot,
Lilianne