Bansal Yaron estimation

I am trying to estimate Bansal-Yaron 2004 (JoF) equations 8 (page 1487 on the published verdion) using consumption and dividend growth rates.

I´m getting no dynamics for the stochastic volatility process (the shock is always zero as the estimated series)

Can anyone take a look at the code (attached) and tell me where I am doing a mistake?

(Note: I use dynare under linux (no excel!) so my data are in a mat file (attached). If you want to test the code please rename the data_mine.xls to data_mine.mat)

Thank you

Stefano
data_mine.xls (4.41 KB)
BansalYaronML_s.mod (1003 Bytes)

You cannot estimate stochastic volatility processes with Dynare. The reason is that you would need a third order approximation to the model and e.g. the particle filter for estimating it. See e.g. Section “B.5 Model Solution” of the Appendix to Born/Pfeifer (2014): Policy Risk and the Business Cycle at sites.google.com/site/pfeiferecon/Born_Pfeifer_Policyrisk_Appendix.pdf?attredirects=0