Dear,

I try to do a robustness check when estimating Taylor rule with a reaction to 1)current inflation, 2)expected inflation. Therefore, the Taylor in Dynare code look

1)Rhat = (1-rR)*rq*qinf + (1-rR)*rpi*pihat+ry*(1-rR)*Yhat+rR*Rhat(-1)+eRhat; for current inflation

2)Rhat = (1-rR)*rq*qinf + (1-rR)*rpi*pihat(+1)+ry*(1-rR)*Yhat+rR*Rhat(-1)+eRhat; for expected inflation

Although I get estimated the model with a reaction to current inflation, I get an error when estimating the model with a reaction to expected inflation. Here is the error message:

??? Error using ==> chol

Matrix must be positive definite.

Error in ==> metropolis_hastings_initialization at 52

d = chol(vv);

Error in ==> random_walk_metropolis_hastings at 43

ix2, ilogpo2, ModelName, MhDirectoryName, fblck, fline, npar, nblck, nruns, NewFile, MAX_nruns, d ] = …

Error in ==> dynare_estimation_1 at 1057

feval(options_.posterior_sampling_method,‘DsgeLikelihood’,options_.proposal_distribution,xparam1,invhess,bounds,gend,data,…

Error in ==> dynare_estimation at 62

dynare_estimation_1(var_list,varargin{:});

Error in ==> A_new at 311

dynare_estimation(var_list_);

Error in ==> dynare at 132

evalin(‘base’,fname) ;

Could you help me on this, please?

I enclose my Dynare code and data used for the estimation.

Many many thanks in advance,

M

A_new.mod (4.29 KB)

data_new.m (3.49 KB)