I'm currently solving a new Keynesian model with government spending. It's the basic model version, with constant returns to scale on the only production factor work.
Everything has worked out fine in terms of solving the model with Dynare, the only thing that I don't understand is the output regarding P(Price level, not inflation) and W(Wages, not in real terms).
After the gov. spending shock hits, all variables move back into their steady state i.e. the impulse response functions return to zero as time goes on. This also is the case for >real
The only variables that do not return to their steady state are P and W(nominal). They both spike upwards as the shock hits and then return to a state even higher than that, as the shock fades out.
Why is this the case, what is the economic intuition behind it?