Hi, all

i´m trying to estimate the model proposed in Galí, Smets and Wouters “Unemployment in a estimated New Keynesian model”, 2012 (GSW)

using Spanish data. the model includes the same observable series that in Smets and Wouters, 2007 including

unemployment rate instead of employment rate. I follow the Smets and Wouters’ code developed by Michel Juillard, adding

some variations. For simplicity, the model doesn´t include the rule for smoothed consumption nor the exogenous labor supply.

The program works correctly and values of estimated parameters are mostly close to the same values obtained with other models like (Casares, Moreno, Vázquez, 2014). However, some estimated results doesn´t make any sense. i.e, estimated natural wage mark-up is close to zero in every period.

Equations included in GSW which allow us to define the labor market are the following:

Wage setting

w = …+ w4*(marw-marnw) ( only the term in which appears unemployment is written.)

Wage markup:

marw = w - (z + eps_x + sigma_l*l) = sigma_l*unem

Natural wage markup:

marnw = 100 * eps_w = sigma_l* unem_star;

Measurement equation:

unemobs = unem + costunem; (costunem is the Steady-State unemployment rate)

I can´t find the way to write in Dynare correctly how to obtain reasonable values for the natural wage markup. I think the measurement equation related to observable unemployment is not suitable defined according this definition of unemployment in GSW, but i couldn´t find how to define in a different way.

Thanks,