I am trying to estimate the simple Gali-type model (chapter 3).
I have the standard code (available online), and I simulate it to first check if everything is okay (no coding errors). Then I follow standard procedures and introduce the commands. The priors are selected from Smets and Wouters (2007). For the data I do the following transformations:
- yobs: Take log(GDP/capita), then find the trend using HP filter with lambda = 1600, and then subtract the trend from log(GDP/capita) to find output deviations. The deviations are used in my analysis.
- pinfobs: I take the log of the deflator for (t/t-1) and multiply it by 400 to get annualized rates. Then I subtract each observation with the long run mean.
- Interest rate: Take log of federal funds rate.
Although my estimation results seem to be near perfect (and expected), the shocks look very strange and seem to (possibly) indicate some problems with stationarity (such as monetary policy shocks not being zero mean). I have followed the measurement equation pdf file step by step, so I do not know the issue.
My mod file, excel file and the plot of the figure of the shocks are attached. Does anybody know what is going on, and what I am doing wrong?
data_us.m (6.75 KB)
est.mod (2.48 KB)
shocks.pdf (9.07 KB)