DGSE with multiple assets

Estimation ML/Bayesian estimation
1

Hello,

I want to construct a DSGE model and use different stock prices data for structural estimation. Could you please recommend any paper that use a DSGE (or partial equilibrium) model that treats multiple (>=3) stock prices to be endogenous variables?

It seems not difficult to include multiple-assets in Jermann (1998), but then they are all determined by the same Euler equation. How can I distinguish among different stocks?

Thanks!

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2

Have a look at Fabio Canova’s slides on data rich DSGE models:
Canova_data_rich_DSGE.pdf (126.0 KB)

The idea is to have an observation equation linking several observables to one variable in the model using flexible loadings and measurement error.

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3

hello professor,
is there code for canova data rich dsge? I only know bayesian basic code,is it just observation equation？where to put loadings? I didn’t find it in the dynare manual about data rich type. :smiling_face_with_tear:
Thank you very much!

4

I am not aware of an example, but it’s only about the observation equation. Say you observe 2 series that are linked to inflation. The setup would roughly look like

var pi_obs_1 pi_obs_2 pi; 
varexo u_1 u_2;

model;
pi_obs_1=lambda_1*pi+u_1
pi_obs_2=lambda_2*pi+u_2
end;

varobs pi_obs_1 pi_obs_2;

estimated_params;
lambda_1 ....
lambda_2 ....
stderr u_1 ....
stderr u_2 ....
end;
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5

Thanks so much Professor
I didn’t expect your reply so fast! I go to try it in replication of papers.