Quadratic terms in DSGE

[ecrgap]

Hi Tom,

Further to our previous discussions on time variation and regime switching, I tried to calibrate a simple dsge where the interest rate rule is i = a1*y+a2*p^2, i.e. quadratic in the inflation rate. I tried then to extract the impulse responses using the dlmirf and it worked. However I wanted to ask you whether what I got is correct.

Thank you

[TomDoan]

Obviously, it's not exact, since the model isn't linear, but as an approximation, yes.