I want to estimate a gap-model in levels with a stochastic trend that includes a constant in the drift, particularly:
% trend mmu = mmu(-1) + bbeta(-1) + e_lev; % drift bbeta = rrho*bbeta(-1) + (1-rrho)*bbeta_const + e_slp; % cycle car = pphi1*car(-1) + pphi2*car(-2) + e_cyc; % measurement ym1 = mmu(-1) + car(-1) + e_irr; trend = mmu(-1); cycle = car(-1);
Note that I have no problem with the version where the drift is a random walk without a drift, i.e., rrho=1. However, I want to have more control over the trend growth rate and thus work with the version where 0<=rrho<1. I have this version in Eviews up and running. But I could not get Dynare run it. I use diffuse_filter option and tried steady(nocheck) with various initial values but Dynare spits errors about computing the initial likelihood and/or steady states.
The code attached.
gap_model.zip (88.4 KB)