An error in computing likelihood for initial parameter values

Hi everyone, I produce the DSGE model specification with housing collateral and bank lending. I am running the model in Dynare by using calibration. It works well but NOT in Bayesian estimation. I’ve got stuck in computing likelihood for initial parameter values, though I give the same set of initial values that I use in the calibration part. If someone is professional and can help me checking or getting through this problem. It would be very very appreciated.

Here is the problem,

initial_estimation_checks:: The forecast error variance in the multivariate Kalman filter became singular.
initial_estimation_checks:: This is often a sign of stochastic singularity, but can also sometimes happen by chance
initial_estimation_checks:: for a particular combination of parameters and data realizations.
initial_estimation_checks:: If you think the latter is the case, you should try with different initial values for the estimated parameters.

ESTIMATION_CHECKS: There was an error in computing the likelihood for initial parameter values.
ESTIMATION_CHECKS: If this is not a problem with the setting of options (check the error message below),
ESTIMATION_CHECKS: you should try using the calibrated version of the model as starting values. To do
ESTIMATION_CHECKS: this, add an empty estimated_params_init-block with use_calibration option immediately before the estimation
ESTIMATION_CHECKS: command (and after the estimated_params-block so that it does not get overwritten):

Error using initial_estimation_checks (line 143)
initial_estimation_checks:: The forecast error variance in the multivariate
Kalman filter became singular.

Here are the mod files

obs44.xlsx (12.8 KB)
version1_est.mod (15.3 KB)

Best,
Krissy

You have various issues:

  1. You are not handling parameter dependence correctly.
  2. Your observation equations are wrong. For example, your data is not mean 0 while the model variables are.
  3. Regarding the stochastic singularity, try dropping one variable at a time. Search the forum for details.

Please have a look at Pfeifer(2013): “A Guide to Specifying Observation Equations for the Estimation of DSGE Models”.

Thank you very much Prof. Now, I will read the attached file and try to figure out.