Need help about interest rate shock in NK model
Posted: Mon Jul 15, 2013 8:48 amI construct NK model that includes of government and central bank.
Government consumes the goods, get income tax, and issue bond.
The government budget constraint is equation 14. The bond interest rate is same to interest rate policy from CB.
My problem is
When I simulate model with positive interest rate policy shock (eR = 0.01),
the IRF shows that in first period the interest rate policy go down.
I do not know why R go down. (Actually it should go up = 0.01 b/c I add eR = 0.01)
I also attach my mod file here.
Thank you for any help.
Government consumes the goods, get income tax, and issue bond.
The government budget constraint is equation 14. The bond interest rate is same to interest rate policy from CB.
My problem is
When I simulate model with positive interest rate policy shock (eR = 0.01),
the IRF shows that in first period the interest rate policy go down.
I do not know why R go down. (Actually it should go up = 0.01 b/c I add eR = 0.01)
I also attach my mod file here.
Thank you for any help.