Market clearing equation and associated dilemma in estimation

Hello people,

Since we cannot estimate all the components of market clearing equation (Y=C+I+G). I have made Y, C and I as observed variable. But in this case, whole of my G dynamics remains un-captured. The mode-check plots also suggests that G is not identified from the data at all. I am surprised why this is happening!

What is the way out? Should I make C, I and G as observed ?

Make all three observed and add measurement error on investment. Then try what happens.

Hello Professor,

I dont know by why blanchard kahn conditions are not satisfied in my model. When I make K_n and K_p (capital) non-predetermined, code runs well. I dont have any other pre-determined variable. How should I debugg?

BE_corrected_rpc_diffeuler_uadg_diff.mod (17.6 KB)

That’s hard to tell. Why do you have three capital stocks?

Because one capital (k) pertains to normal price rigid model block, other (k_n) pertains to flexible price equilibrium and (k_p) pertains to model block where all dynamics is due to only persistent growth rate shocks.

Are those economies separate? I.e. have you tried whether the individiual economies like the flex-price one work?

Thnx Professor for your patience! The code ran, I had log-linearised FOC of capital in a wrong manner.