Definition of variables in dynare

[jpfeifer]

I still don’t know where this is going. As mentioned at

How dynare cast model into state space representation

You need to distinguish conceptually between the state space system for the Kalman filtering and the one representing the model solution. For the Kalman filtering, you do not care about control variables that are not observed. There, you would simply drop them. In terms of the model solution, they belong to y. The rule is: everything that is not a state is a control.

it depends on what you want to do. For Kalman smoothing, it may make sense to use a different representation. Unless you have a specific application in mind, it is impossible to give you a satisfying answer. Even Dynare internally uses different representations depending on what is required.