How to specify measurement shocks?

Dynare help (legacy posts)
1

Dear all,

I am new to Dynare (am using Dynare v3) and I appreciate your advice on my following questions.

I am learning to estimate a DSGE model, but the number of structural shocks is smaller than the number of observables. In that case, I need to specify measurement errors. I am not sure how to do it as from the textbook I need to find the decision rules for the observables first before adding the measurement errors. How can I possibly do it in Dynare? I have searched through the whole user guide and I still have no clue how to do it.

Thank you very much for your help in advance!

Yours,
JCW

2

The trick is to tell Dynare that you want to estimate the variance/stderr on some observable variable in the estimated_params block.
Dynare will understand that you are not estimating the variance of the variable itself, but only the variance of the measurement error.

Best,