Dear Johannes,

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.

Best regards,

Jesse

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Thank you for your helpful guidance!