Dear MMB team,
I’ve been looking at your mod file for the paper Monetary policy and risk taking by Angeloni, Faia, and Lo Duca from the JEDC (NK_AFL15), but I’ve found some issues with it. I noticed this since I’ve also been busy replicating the paper from scratch and have been struggling getting it to work properly. These are some of the issues I’ve found with the MMB mod file:
The IRFs of the replication are qualitatively similar, but not quantitatively identical to the original paper (Fig. 3, pp 300). Since the calibrated parameters are identical to the original paper, the IRFs should also be identical.
Some of the steady state values in the MMB mod file are strange. For example, bank capital (bk) is negative in the steady state (approximately -0.007), implying that banks are operating with negative net worth. Furthermore, the gross return on capital/assets in the steady state is approximately equal to 1.40. This would imply net quarterly returns of 40%, which is also rather extreme. I also think the steady state value for the nominal interest rate is a bit strange: the mod file says this is 1 divided by the subjective discount factor, but equation (4) (pp. 292) shows that the variables g and phi should also feature in the steady state condition.
Sorry if this sounds a bit harsh, because I do appreciate the effort everyone’s putting in this wonderful project!