Hello,

I have read “A Guide to Specifying Observation Equations for the Estimation of DSGE Models,” and I am now trying to apply the methods in this paper.

I wish to focus on the beta parameter first to get an understand of the process.

I have three questions:

- What is the best way to define a composite parameter when the beta is contain in the in the parameter.

Do I define the composite parameter as a local variable in the model? For example

#local_beta = beta;

#lambda_home1 = ((1 - alpha2 + alpha2*(1 - comOpenness) + alpha1*comOpenness + (alpha1 + alpha2) comOpenness)*theta))/ (1 - alpha2 + alpha2*(1 - comOpenness) + alpha1

* (1 - theta)(1 - beta

*comOpenness*

+ (alpha1 + alpha2)comOpenness

+ (alpha1 + alpha2)

*comOpenness + (-alpha2 + alpha2*(1 - comOpenness) + alpha1+ (alpha1 + alpha2)

*comOpenness)*epsilon + theta);

ppi_os = local_beta*ppi_os(+1) + lambda_home1*mc_os;

…

- I was going along the direction of question 1 in my dynare code, but I get this error. How do I resolve this error ?

RROR: gc_ov2.mod: line 297, cols 23-28: Variable alpha2 not allowed inside model declaration. Its scope is only outside model.

- I am also having an issue with the likelihood function, see below. The data that I am using in the excel has the following transformation.

gdp_obs -> the cycle data of ----> hpFilter ( Log ( Y_data/ N_data))

gdp_obs is stationary …

How do resolve this error.

Warning: Matrix is close to singular or badly scaled. Results may be inaccurate. RCOND = 1.025731e-17.

In lyapunov_symm at 162

In dsge_likelihood at 374

In initial_estimation_checks at 47

In dynare_estimation_1 at 179

In dynare_estimation at 89

In gc_ov2 at 344

In dynare at 180

Error in computing likelihood for initial parameter values

ESTIMATION_CHECKS: There was an error in computing the likelihood for initial parameter values.

ESTIMATION_CHECKS: You should try using the calibrated version of the model as starting values. To do

ESTIMATION_CHECKS: this, add an empty estimated_params_init-block with use_calibration option immediately before the estimation

ESTIMATION_CHECKS: command (and after the estimated_params-block so that it does not get overwritten):

Any help would greatly be appreciate it and thank you in advance.

Regards,

Richard

gc_ov2.mod (20.5 KB)