Impulse response functions and shocks

[yc1122]

Hi all,

Just wanna make sure are IRFs in dynare computed based on (positive) one standard deviation shock? i.e. say the monetary policy shock is actually a contraction shock (which brings down output, consumption etc.) in the IRF plots reported by dynare?

Thanks.

cheers,
yc

[jpfeifer]

Dynare always takes a one standard deviation shock by default. If you shock enters with a plus sign, e.g.

Code: Select all

i=rho*pi+eps_m

this will be a positive shock (however, in a Taylor rule, this would have the interpretation of a contractionary, often called "negative", shock). If you want a negative shock, write

Code: Select all

i=rho*pi-eps_m

i.e. enter the shock with a minus sign.

[yc1122]

Got it. Thanks a lot.