Estimation issue

General DSGE Modeling Replication Attempts
1

I am trying to work with the model in “optimal monetary policy under low trend inflation”. I have done the basic coding (which I double checked and is correct) and now want to estimate the model. The model has trend inflation.

I am following the instructions closely from the excellent handbook: A guide to specifying observation equations for the estimation of DSGE models. On page 43, the authors describe how to estimate this type of a model (equations 43 and 44).

I follow equations (43) and (44) to the letter. For output and real balances, I use: first difference of log GDP and first difference of log of real balances (money/price index).

However, I am having trouble estimating this model. The exact error I get is “POSTERIOR KERNEL OPTIMIZATION PROBLEM!”.I sense this is something to do with how I match my data with the model, but I am at a loss since I a followed all the instructions. Can someone have a look? The code and data are attached.

In the data file, the second sheet contains how I went from raw data to getting the data ready for estimation. The first sheet contains the data used in estimation.
trend.mod (1.8 KB)
usdata.xlsx (51.5 KB)

2

Use the resid-command to see

Residuals of the static equations:

Equation number 1 : 0
Equation number 2 : 0
Equation number 3 : -1.0036
Equation number 4 : 0
Equation number 5 : 0
Equation number 6 : 0
Equation number 7 : 0
Equation number 8 : 0
Equation number 9 : -0.0099461
Equation number 10 : -0.016199
Equation number 11 : -0.0033647
Equation number 12 : -0.0013755

This shows that there is a problem with the linearization of equation 3 where you have an unhandled constant flying around. Also, for the observation equations, you are missing

steady_state_model;
//measurment equations
infl    = 100*(pss-1);
rfed    = log(rss);
yhat    = ymean;
mhat    = mmean;
end;