I have been trying to estimate a medium sized DSGE model with Gertler-Karadi banks that have both government bonds and corporate securities on their balance sheet. I employ Spanish data to do so.
I have read a lot of blogs on this forum and I think I have made sure to avoid some of the standard mistakes that I find on this forum. I have treated the data by calculating quantities through dividing by the GDP-deflator and by a measure for the working population to arrive at real GDP per capita, real consumption per capita etc. Interest rates are converted into real rates by dividing by the GDP-deflator as well. All variables (including interest rates and inflation) go through the one-sdied HP-filter that I downloaded from this forum. Attached you find two sets of observables: historical.pdf which contains some of the variables for the period 1998-2007, and historical-fig-23.pdf, which contains data for the period 1998-2010. The last sample includes the financial crisis, and shows unit-root like behavior, which is the reason that I switched to 1998-2007 data at one point.
As I am not very familiar with what data should look like in a Bayesian estimation, I would be grateful if someone could tell me whether these data are suitable for estimation at all, or whether I have already made a mistake in my data-processing or data selection.
Then I put the model in loglinear form, also for inflation and gross interest rates. As I am employing the loglinear form in my dynare file, I link all observables and model variables (call them X_t, with loglinear counterpart X_t_tilde) through the following relation, as I believe it to be from dr. Pfeifer’s guide on Observation equations:
X_t_obs = X_t_tilde - steady_state(X_t_tilde);
I do not multiply by 100, something that I regularly read on this forum. Both the data from my one-sided HP-filter, as well as the loglinear deviations from the steady state are in decimals.
Then I start estimating. I employ the identification check at the prior mean, and my model does not flag any problems at this point. I start by using mode_compute = 6, and then move on to mode_compute = 9. I have checked that stochastic simulations of my model generate sensible results for financial crisis shocks, capital quality shocks and government spending shocks, and productivity shocks. I provide a separate steady state file so that I can match some specific first moment targets, while being able to estimate parameters that affect the steady state. After some debugging this file correctly calculates the steady state during the estimation.
The results are mixed, but the problem is one of the following three:
- the value of one or two parameters do not make sense economically,
- there is still a drift in one or more parameters.
- for the 1998-2007 period it is hard to find the mode.
As far as I understand there are no mistakes that I am aware of in the model, especially because the identification check in the beginning tells me that there are no problems. As I am relatively new in Bayesian estimation of DSGE models, I have the feeling that I might miss something that screws up my estimation, either in the data or at a later stage.
I would be very grateful if someone could take a look at my data, and if necessary at my files, which I will happily upload in that case. Thanks in advance.
historical.pdf (9.9 KB)
historical_fig_23.pdf (10.5 KB)