Dear Professor Pfeifer,

I have ecountered a problem when doing the Bayestion estimation. Would you please give some advice? Thank you very much.

Question description:

The parameter gamma is the one that I want to estimate in the model. I set its prior mean as 2 for example, and then run the code. The Dynare displays that ‘‘Initial value of the log posterior (or likelihood): -729.6099’’.

When I change its prior mean to 0.5, Dynare displays that ‘‘Initial value of the log posterior (or likelihood): -1734452.5732’’, which is a very large number.

(1) Does this mean that setting prior mean at 2 is better than 0.5?

(2) When I write the estimated_params block, I write like

‘‘rhoR,0.5,BETA_PDF,0.5,0.2;’’

But I do not quite understand what is the meaning of first ‘‘0.5’’? and in what situation should I change it ?

Any reply will be appreciated. Thank you !