Error: the forecast error variance in the multivariate Kalman filter became singular

We’ve got a problem with this code. In particular, we have to estimate a model with flexible prices and wages. But Dynare put up this error:

initial_estimation_checks:: The forecast error variance in the multivariate Kalman filter became singular.
initial_estimation_checks:: This is often a sign of stochastic singularity, but can also sometimes happen by chance
initial_estimation_checks:: for a particular combination of parameters and data realizations.
initial_estimation_checks:: If you think the latter is the case, you should try with different initial values for the estimated parameters.

ESTIMATION_CHECKS: There was an error in computing the likelihood for initial parameter values.
ESTIMATION_CHECKS: If this is not a problem with the setting of options (check the error message below),
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):

Thank you for your help, best (36.1 KB)

Your model implies a perfect linear combination between the observables. If you drop output from the varobs the file will work.

But in the next step we have to estimate dy, so we cannot drop it from the file!

Please read up on “stochastic singularity”. See e.g. Cannot have more observed variables than shocks?