I’m trying to calibrate the model. I encounter an issue with the capital-output ratio.
a) If I take the GDP deflator for K and Y series, I get a long -run ratio of 4.4 (from 1985-2018) while this ratio is at 5 in 2018, which gives me a problematic trending ratio.
b) If I take actual real values from national account, I get a long-run ratio of 5.5 while the ratio is at 5 in 2018.
Should I transform all my nominal values from the same deflator as Smets et Wouters (2007)?
If so, the capital BGP value would be at 4.4 in endval, but in initval it would be at 5. The simulation would force capital to diminish through time from 5 to 4.4, which is troubling. Should I not specify an endval block? Or should I fix my trending ratios at 2018 actual values, and the rest according to long-run mean?