Hello, I’m estimating multisector NK model and I got question on measurement error.

My observable includes sectoral relative price gaps(=relative price - efficient relative price), and by definition, weighted sum of sectoral relative prices (or their gaps) is zero.

So, the equation 0 = \sum_{k=1}^K n_k p_{k,t}^R is included in the model.

I have relative price gaps as an observables for whole sectors, so they are having exact linear combination. Therefore, I want to put some measurement error here.

I looked up professor Pfeifer’s guide book, and I put the measurement errors for each sectors’ observables as below.

@#for i in 1:secnum

Dpr@{i} = prhat@{i} + vpr_me@{i};

@#endfor

But in this case, I have to put 16 measurement errors as I have 16 sector model.

I think it is not efficient, as I only need 1 measurement error for the above equation like

0 = \sum_{k=1}^K n_k p_{k,t}^R + me.

Is there any way I can do this? Or please advice me if I am misunderstanding something.

Thank you so much!

I attached my mod and data file just in case.

question_dynare.zip (28.2 KB)