1.In Dynare, if we estimate the model using maximum likelihood estimation, is it ture that dynare adds measurement errors implicitly?
In some examples, measurement errors are added to model explicitly as exogenous variables. In this case, will Dynare add measurement errors again? Does Dynare know that measurement errors are already explicitly modeled ?
Question 1: No. You have to specify measurement errors in the estimated_params. For instance, if you think that there may be a gap between the observed variable Y and the theoretical Y, you can add a measurement error on this variable by writting:
You’re right Emma. You can alternatively introduce measurement errors this way. If I remember correctly, Ireland assumes that the measurement errors are modelled with a VAR(1). This can be done, if I follow your example, by declaring ey as an endogenous variable and by adding
in the model block (with eey an exogenous variable). And then you just have to estimate the size of eey and the autoregressive parameter.