Dear Prof. Pfeiffer,
I tried to estimate the model from “Unemployment in an Estimated New Keynesian Model” from Gali, Smets and Wouters (2012) with Euro-Area data.
It worked, but only as long as I did not include the auxiliary equation for observed employment. This is proposed by Smets, Warne, Wouters (2014) - “Professional Forecasters and Real-Time Forecasting with a DSGE Model” in relation to Smets/Wouters (2003) in order to account for stickiness on the labour market.
By including this equation the residual of its static equation becomes NaN and the steady state cannot be computed.
Is there maybe a timing problem or do you have any other idea of what the problem could be?
Below you find the model, which is working (GSW_2012_esti.mod) and the one which is not (GSW_2012_GWW_2014.mod), plus the used data file.
Thank in advance for your help.