Dear Ned,

Thank you very much for your reply.

Can I add some more thought on my model and ask more help from you?

With regard to your first point, actually, what I really want to know is how to estimate parameters when one of the variable is exogenously given. For example, my model is kind of two stage model. The interest rate is decided in the first stage, and agents in the economy make consumption/saving decision in the second stage given that interest rate from the first stage. For this reason, my model doesn’t have monetary policy rule, and the interest rate (RA) is exogeneously given. Here I’m trying to estimate the second stage where the interest rate is not endogenously decided.

For your third point, I just skip them (parameters and estimation part) to save space. Of course I have them in my mode file. About the measurement error, since the number of shocks are two, and the number of observable variables are three, I thought, I need to add one measurement error. I attached the full mod file here.

Could you help me more?

Regards,

Leo

[quote]Hello there.

I don’t know much myself but I’ll try to help. Firstly, you can only set endogenous variables as observables and in your case you have an exogenous variable along the varobs command, thus the error message. Don’t get carried away by the thought that interest rates are given exogenously. Interest rates are an endogenous variable of your model and are governed by an exogenous shock process.

Secondly, note that the varobs command is used when you have a data set linked to the variable you want to set as observed (i.e. a time series of interest rates or output in excel). This is done when you want to estimate the model’s parameters based on real data. You can have a look here dynare.org/manual/index_27.html.

Furthermore, your code seems to lack information about the parameters of the model, in your case kappa and sigma. You should specify those with the parameters command. Lastly, I cannot understand what you mean by the measurement equation RA_obs = RA + ra.

Ned

Posts: 6

Joined: Sat Jun 14, 2014 1:00 pm

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2nd_stage.mod (2.86 KB)