I am new to dynare so there are probably several interrelated sources of confusion here.
I am trying to replicate Rabanal and Rubio-Ramirez, “Comparing New Keynesian models of the business cycle: A Bayesian approach”, JME (2005).
They have their model already linearized around the steady state, so this is what I used for the model equations.
I began by simulating the model using the means of their estimated posterior distributions for parameter values. This goes through.
I then try to estimate their model using, as they do, data on output, prices, wages and interest rate. Here is where I am stuck.
For the eigenvalues I get
EIGENVALUES: Modulus Real Imaginary 0.4391 0.4391 0 0.8 0.8 0 0.85 0.85 0 1 1 0 1.011 1.011 0 1.047 1.047 0 Inf Inf 0 There are 3 eigenvalue(s) larger than 1 in modulus for 3 forward-looking variable(s) The rank condition is verified.
So it seems I have a unit root. Might this be the reason for the following problem?
Error in computing likelihood for initial parameter values Error using print_info (line 40) Blanchard Kahn conditions are not satisfied: no stable equilibrium