HI, i’m working on bayesian estimation of Gertler e Karadi paper (2011). For the priors i have used like framework Smets and Wouters 2007 but I have some problem to understand what is the priors for one parameter. Could you help me ?

The parameter is Inverse elasticity of net investment to the price of capital (eta_i beyond my code) tha is bayesianestimation.mod (10.5 KB).

Then, this is the other code or paper that i’m using now.

Smets_Wouters_2007_45.mod (20.7 KB)

foerster_appendix2015.pdf (180.4 KB)

GertlerKaradi2011.pdf (527.1 KB)

What exactly is the question? Isn’t that parameter equivalent to

```
csadjcost,6.3325,2,15,NORMAL_PDF,4,1.5;
```

My question is what is the right prior for the parameter eta_i (in my code) that is the inverse eleasticity of net investment of the price of capital.

csadjcost,6.3325,2,15,NORMAL_PDF,4,1.5; this i thinked that is in relation an another parameter that is zetta( in my code), investment adjustment cost. It is right ?

\zeta in Gertler/Karadi is the capacity utilization cost parameter:

\eta is investment adjustment costs:

OK, now is clear! Thank you so much!!

but in this case, for the capacity utilization cost parameter i have an initial value of 7.2, but the prior in S&W 2007 is a beta including from 0.01 to 1. I must change the initial value for the estimation ?

That’s hard to tell. You should first check whether the functional forms are identical in both papers. If yes, you may want to consider to let the data speak and allow for a wider prior.