Hi,

I have been trying to estimate a pared-down version of Fernandez-Villaverde and Rubio-Ramirez (2006) “Benchmark DSGE Model” using South Korean data, and I’ve run into a number of issues along the way - I am new to Dynare so I would greatly appreciate any help!

I suspect that my issue comes from either mis-specified or miscaled shocks, but I can’t figure out how to fix it. When I run the estimation, the posterior estimates seem reasonable with the exception of the standard errors of the three shocks (monetary policy, intertemporal preference, and labor disutility shocks) and the labor disutility parameter, which are all absurdly large. I get an error saying that the matrix is badly scaled/close to singular, and I think that stems from my shocks being miscaled - but all my shocks are explosive unless I set them at extremely small values. Depending on what I do, I also sometimes get errors saying the matrix isn’t positive definite or that the hessian matrix “at the mode” is not positive definite.

I’m not sure if my shocks are specified incorrectly or if my priors are inappropriate. The model is entered nonlinearly but written for Dynare to loglinearize. I kept the the shocks written as they were (I was trying to follow Pfeifer 2013 but I am a little confused here), for example:

Euler equation: d/exp© = exp(lam)

where d is a preference shock that follows law of motion log(d)=rhod*log(d(-1))+epsd, but I’m not sure if that’s correct? I would greatly appreciate any help!

Data and mod files are attached. I’ve applied log differences yd, c, and l (without scaling by 100) and logged inflation and interest rate.

test4_steadystate.m (4.47 KB)

test4.mod (5.43 KB)

data.txt (13.9 KB)