I’ve been trying to estimate a model using the NK_baseline mod file found in Dynare examples folder. So far I’ve made progress and thought opening up a new thread exclusively dedicated to this mod file queries will help future users.

This link will refer to my previous queries on the model estimation.

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Question: In the mod file the way the shocks are defined is different to FV(2010). For example;

In FV(2010) the shock processes are defined as;

However in the mod file standard deviation terms (i.e. sigmas) and lag terms (in 2nd and 3rd equations) are not included.

The standard deviations are in the shocks block, not in the equations. But that setup is equivalent.

You need deal with the trend that renders the mu non-stationary. We do that in the mod-file by defining the growth rate of mu, i.e. \tilde \mu_t=\frac{\mu_t}{\mu_{t-1}}
and entering log \tilde \mu_t=\Lambda+z_t

I’m planning on including measurement error terms in the observation equations for wage growth, gdp growth, and inflation using Dynare capabilities. Can you give me a guidance on how to go about determining the shapes of the distribution and standard deviations for these error terms?

I would suggest to have a look at other papers using measurement error. One option is to use a uniform distribution with an upper bound equal to e.g. one quarter of the variance.

I’ve noticed estimation works for a certain portion of my data set but for the rest I get “error: chol: input matrix must be positive definite”. I’m using mode compute = 4. Could you tell me what causes this error?

In your case, it calibrates the unit shocks. If you delete it, the shocks will drop out. More generally, it is advised to fully calibrate the model before estimating it.

Could you explain what below warning mean and should I be concerned about that?

warning: gaminv: calculation failed to converge for some values.
warning: called from
gaminv at line 82 column 7
prior_bounds at line 92 column 30
dynare_estimation_init at line 341 column 16
dynare_estimation_1 at line 109 column 93
dynare_estimation at line 118 column 5
driver at line 533 column 14
dynare at line 278 column 5