A new colleague of yours decided to try her hand at DSGE models and found some computer code that allows her to run a version of the Smets-Wouters DSGE model. She decides to try a contractionary monetary shock. When she does, she gets the following impulse response function for real GDP (left scale), consumption (left), and inflation (right). When she shows you her results you are immediately skeptical based on what you know about economic theory and impulse response functions. Explain your skepticism.
Figure 15.5
Impulse response functions

Question

A new colleague of yours decided to try her hand at DSGE models and found some computer code that allows her to run a version of the Smets-Wouters DSGE model. She decides to try a contractionary monetary shock. When she does, she gets the following impulse response function for real GDP (left scale),  consumption (left), and inflation (right). When she shows you her results you are immediately skeptical based on what you know about economic theory and impulse response functions. Explain your skepticism.
Figure 15.5  
Impulse response functions

Quizplus · Accepted Answer

The Answer of A new colleague of yours decided to try her hand at DSGE models and found some computer code that allows her to run a version of the Smets-Wouters DSGE model. She decides to try a contractionary monetary shock. When she does, she gets the following impulse response function for real GDP (left scale),  consumption (left), and inflation (right). When she shows you her results you are immediately skeptical based on what you know about economic theory and impulse response functions. Explain your skepticism.
Figure 15.5  
Impulse response functions

A New Colleague of Yours Decided to Try Her Hand