I need help with this measurement equations (Y = output growth, S_I = Interest rate and PI = inflation).
The observable variables are ZZ_DY, ZZ_I and ZZ_PI. Which means these measurement equations? Could anyone help me ?
4*log(ZZ_DY) = S_DY;
ZZ_I-1 = S_I;
4*log(ZZ_PI) = S_PI;
Thanks a lot in advance.
They are standard measeurement equations. See Pfeifer(2013): “A Guide to Specifying Observation Equations for the Estimation of DSGE Models” sites.google.com/site/pfeiferecon/Pfeifer_2013_Observation_Equations.pdf.
The first and last one annualize output growth and inflation.
The second one maps the net interest rate in the model (S_I) to the gross interest rate in the data.
Thank you very much for your valuable help and prompt reply!