Dear all,

I am trying to estimate output gap with Phillips curve for small open economy introduced by Gali, Monacelli (2005). To do this I need to use some observable exogenous variables (changes in terms of trade). I have no idea other than to add a deterministic shock for every period. I guess that my following problems arise from this. Code crashes at “tuning of the scale parameter ”with following error:

Blockquote

Error using chol

Matrix must be positive definite.

Error in gmhmaxlik_core (line 194)

dd = transpose(chol(CovJump));

Error in gmhmaxlik (line 100)

[PostMode, PostVariance, Scale, PostMean] = gmhmaxlik_core(fun, OldPostMode, bounds, gmhmaxlikOptions, Scale, flag, MeanPar,

OldPostVariance, varargin{:});

Error in dynare_minimize_objective (line 258)

[opt_par_values, hessian_mat, Scale, fval] = gmhmaxlik(objective_function, start_par_value, …

Error in dynare_estimation_1 (line 220)

[xparam1, fval, exitflag, hh, options_, Scale, new_rat_hess_info] =

dynare_minimize_objective(objective_function,xparam1,options_.mode_compute,options_,[bounds.lb

bounds.ub],bayestopt_.name,bayestopt_,hh,dataset_,dataset_info,options_,M_,estim_params_,bayestopt_,bounds,oo_);

Error in dynare_estimation (line 105)

dynare_estimation_1(var_list,dname);

Error in base_ex (line 1108)

oo_recursive_=dynare_estimation(var_list_);

Error in dynare (line 223)

evalin(‘base’,fname) ;

Blockquote

I’m a beginner, so really very sorry if the question is too easy, or too stupid. Could anyone help me with this? Tanks a lot!

Best,

Elizaveta

Output_gap.zip (222.2 KB)