Model and observable

General DSGE Modeling
1

Hello to all,

I wanted to ask how to match observed and Dynare-specified variable. While reading the excellent Guide to Specifying Observation Equations for the Estimation of DSGE Models, I was wondering how can we abstract from growth in per capita variables if specifying the Euler equation and the law of motion for capital in an stationary form implies that other parameters enter the equations. That is, making the dynare specification stationary requires acknowledging labor augmenting productivity growth. I upload a example with log-utility inspired on

Screenshot 2024-10-02 at 1.49.34 AM
Screenshot 2024-10-02 at 1.49.34 AM1390×570 27.4 KB

Thank you very much,

2

Yes, strictly speaking you need to carry around the growth factors as in e.g. DSGE_mod/RBC_baseline/RBC_baseline_first_diff_bayesian.mod at master · JohannesPfeifer/DSGE_mod · GitHub

But as Eric Sims shows in his lecture notes on page 4/5, that is mostly equivalent to just reinterpreting \beta to be a growth adjusted discount factor and ignoring the rest of the detrending.

3

Thank you very much for your reply professor