Impulse response functions

This figure plots the impulse response functions (IRFs) of neoclassical Q-theory under rational expectations (RE) and diagnostic expectations (DE). All variables are measured at time t = 0. Year “k” (k = 1|$ \ldots $|5) means the dependent variable is measured at time t + k. All IRFs are plotted as a percentage of their steady-state values. Hence, the economic magnitude (y-axis) can be interpreted as the change (expressed as % of the mean) in the dependent variable caused by a one-standard-deviation shock to TFP. The x-axis represent the steady-state value of the variable.