First thank you for your previous guidance, I am grateful.
I have a question regarding estimating DSGE models, in my DSGE model, I would like to include output, consumption, investment and government spending all as observable variables, however, theoretically, output should be a linear combination of consumption, investment and government spending. Although all these variables are log differenced/growth rates, I am wondering will there be any problems like perfectly linearity among observables if I include output, consumption, investment and government spending growth rates simultaneously as observables for estimating DSGE models?
Thank you and look forward to hearing from you.
Thank you for your helpful guidance!