Johannes…I have to compliment you on a very neatly written manual! I followed your instructions on observation equations carefully, and to my childish delight…the model worked! Can I ask a couple of follow up questions:

(a) In your manual, you mention that for output (Y) in a log linearized model, it is advisable to consider Y/N, i.e. per capita income. While I understand the rationale, in many emerging economies, data on labour is quite scarce - in some cases declared once in almost a decade. In such case, can we ‘cheat’ with taking log of Y instead, and go ahead with the chores of seasonal adjustment, de-meaning, etc.?

(b) In my model, after running everything successfully, for Identification, I am getting an error on collinearity (full error message posted below). The ‘phi_’ parameters in the error message below, pertain to fiscal rules in my model - phi_g and phi_t are feedback parameters for government spending and tax rules respectively, i.e. g=phi_g*g(-1)+(1-phi_g)*(phi_b*b+phi_pd*pd…).

Could I possibly get your view on this…

==== Identification analysis ====

Testing prior mean

## Parameter error:

The model does not solve for prior_mean with error code info = 7

Try sampling up to 50 parameter sets from the prior.

Evaluating simulated moment uncertainty … please wait

Doing 465 replicas of length 300 periods.

Simulated moment uncertainty … done!

All parameters are identified in the model (rank of H).

WARNING !!!

The rank of J (moments) is deficient!

```
[theta_i,eta_c] are PAIRWISE collinear (with tol = 1.e-10) !
```

phi_g is collinear w.r.t. all other params!

phi_t is collinear w.r.t. all other params!

phi_b is collinear w.r.t. all other params!

phi_pd is collinear w.r.t. all other params!

phi_b_t is collinear w.r.t. all other params!

phi_pd_t is collinear w.r.t. all other params!

??? Error using ==> bar at 57

Only complex vectors are supported.

Error in ==> plot_identification at 74

bar(log([idehess.deltaM(is) idehess.deltaM_prior(is)]))

Error in ==> dynare_identification at 352

plot_identification(params,idemoments_point,idehess_point,idemodel_point,idelre_point,advanced,parameters,name,IdentifDirectoryName);

Error in ==> Bay1_Markup_tax at 594

dynare_identification(options_ident);

Error in ==> dynare at 180

evalin(‘base’,fname) ;