Hi all,
I’m digging up an old posts that are relevant to my question.
Right now i have a log-linearized large scale DSGE model, and I want do bayesian estimation. The problem is that some steady state values appear as the coefficients of some model equations. Due to the model complication, I need to use “fsolve” to compute the steady states of some variables, and these steady state values are not guaranteed existence for some sets of parameter values. I’m thinking two ways to deal with it:
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I could construct an independent steadystate.m file (e.g. the posts Steady state file ), which contains the “fsolve”. What I’m concerned is that some prior draws may not lead to a solvable steady state. I wonder how the dynare will deal with theses priors? Will it show an error and stops executing?
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I may estimate these steady state values instead of constructing them from structural parameters. But this seems to introduce redundancy. There could be cases that the estimated steady state values are far away from the calibrated one.
2.1 What’s the drawback of this way of dealing steady state values? Is the estimation result “reliable”?
2.2 I saw the previous post mentioned that we could introduce measurement error. So how does it work?
Thanks very much!