Problems with identification for a SMOE (As in Gali ch. 7)

It seems to me you are simply neglecting the parameter dependence. Your calibration only once updates the other parameters depending on the estimated one. That’s why you should use model-local variables (the ones with the pound operator) or a steady state file. See Remark 4 (Parameter dependence and the use of model-local variables) in Pfeifer(2013): “A Guide to Specifying Observation Equations for the Estimation of DSGE Models” sites.google.com/site/pfeiferec … ations.pdf.

For example, you estimate c1telast, but you set outside of the model or steady state

c1rhoc = 1/(c1telast -1); c1rhoo = 1/(c1oelast -1);
Thus, c1rhoc and c1rhoo will not be updated.