Questions on bayesian estimation

Estimation ML/Bayesian estimation
1

Dear Professor Pfeifer,

I’ve got three questions when doing the bayesian estimation. Would you please give any advice? Thank you very much.

  1. The moments of main variables I got after bayesian estimation are much larger than the moments of real data. I try to use endogenous_prior option, but I get errors as bellow:

There are 27 eigenvalue(s) larger than 1 in modulus
for 27 forward-looking variable(s)

The rank condition is verified.

In endogenous_prior (line 88)
In dsge_likelihood (line 833)
In initial_estimation_checks (line 137)
In dynare_estimation_1 (line 165)
In dynare_estimation (line 105)
In czh (line 779)
In dynare (line 235)
Warning: Matrix is singular, close to singular or badly
scaled. Results may be inaccurate. RCOND = NaN.

Error in computing likelihood for initial parameter values

ESTIMATION_CHECKS: There was an error in computing the likelihood for initial parameter values.
ESTIMATION_CHECKS: If this is not a problem with the setting of options (check the error message below),
ESTIMATION_CHECKS: you should try using the calibrated version of the model as starting values. To do
ESTIMATION_CHECKS: this, add an empty estimated_params_init-block with use_calibration option immediately before the estimation
ESTIMATION_CHECKS: command (and after the estimated_params-block so that it does not get overwritten):

Error using print_info (line 114)
Prior density is not a number (NaN)
Error in print_info (line 114)
error(‘Prior density is not a number (NaN)’);
Error in initial_estimation_checks (line 175)
print_info(info, DynareOptions.noprint,
DynareOptions)
Error in dynare_estimation_1 (line 165)
oo_ =
initial_estimation_checks(objective_function,xparam1,dataset_,dataset_info,M_,estim_params_,options_,bayestopt_,bounds,oo_);
Error in dynare_estimation (line 105)
dynare_estimation_1(var_list,dname);
Error in czh (line 779)
oo_recursive_=dynare_estimation(var_list_);
Error in dynare (line 235)
evalin(‘base’,fname) ;

How should I deal with this?

  1. Is there any way to make the simulated moments close to the real moments?

  2. When running the bayesian estimation in a model with specified trend, could I use one-sided hp filter instead of one-differnece filter to deal with the observed data?

Thanks again for reading this post, and really appreciate your kindness.

2
  1. I would need to see the codes to replicate the issue.
  2. Not really. Tweaking the priors may be an option.
  3. Yes, you can use a different filter.
3

Dear Professor Pfeifer,

Thank you for your reply.
For the first question, I send you the code through message.
And I’ve got a new question: In which case could I add measurement error in the model?

4
  1. I cannot replicate your issue in Dynare 5.2.
  2. You can always add measurement error. The question is why you would want to do that.