Difficulties when trying to estimate Gali chapter 7 (2015)

Hi everyone,

I am a new user of Dynare. I am trying to estimate (Bayesian) Gali chapter 7, where I have taken the code directly from Johannes Pfeifer: https://github.com/JohannesPfeifer/DSGE_mod/blob/master/Gali_2015/Gali_2015_chapter_7.mod

I have made two changes:

  1. setting alpha equal to 0.
  2. Including price indexation in the Phillips wage curve

I run the estimation on US data 1985-2007 with the following five data series: Column 1: log detrended (quardratic trend) real GDP times 100, column 2: demeaned inflation (GDP deflator, percentage change), column 3: demeaned wage inflation (hourly earnings percentage change),
column 4: demeaned unemployment rate, column 5: demeaned fed funds rate (quarterly).

I believe most of the parameters are not identified which I believe may be due to collinearity issues (especially with the parameters associated to the shocks) and have searched this forum for help. I have tried to transform my data according to Pfeifer: “A Guide to Specifying Observation Equations for the Estimation of DSGE Models” section 4.2 on log-linearised models, however it only makes the estimation worse (data also included).

I am stucked and would hear if anyone could guide me in the right direction. Help is much appreciated!
Best, Anna

Gali code data.zip (11.7 KB)

Why do you think the parameters are not identified? All mode_check-plots show curvature.