I am extending CelsoJoséCostaJunior’s (2016, pp 239-243) model with CO2 emission. During historical shocks decomposition, I am unable to decompose the effects of my (7 shocks). The problem is when I enter more than one shock’s standard error as estimated_params it results in stochastic singularity. With one shock’s std. error it works fine but that is not what I want to have. Can someone please help address this? Are there serious flaws associated with model design? Annual data are log differenced.

dsge_with_gov_new1.mod (13.8 KB)

logDiff.mat (2.1 KB)

The attached files work:

dsge_with_gov_new1.mod (13.8 KB)

logDiff.mat (2.1 KB)

You can clearly see that there is still a problem with the Blanchard-Kahn conditions as there is an oscillating variable and with the observation equations as there is a variable where the mean in the shock decomposition is not zero.

Dear jpfeifer,

Thank you for responding. I incorporated your suggestions into the code chunks, and now I can see there is no problem with code execution. I also changed a parameter’s name from ‘beta’ to ‘betta’ plus rhoG = 0. (missing!) to rhoG = 0.9 (in autoregressive shocks parameters). Some doubts:

- Why do I still get the influence of only two shocks (e_m and e_t) on the system whilst all other shocks remain silent? Is this due to the issues you pointed out already? or are there serious flaws in my modeling?
- Are the issues you pointed out related to (firstly logged and then first-order differenced) data that are stationary but not deseasonalized (thinking that annual series have less chance to become seasonal)?
- I understand the logDiff series do not necessarily have zero mean but my model equations demand empirical data that are log deviation from steady states. I went through your papers (https://drive.google.com/file/d/1r89OU5OE3CBa6tOlj6l3hNVWEaRH5Anv/view, DynareReferenceManual Release5.5, including others) but I am still struggling on my empirical data handling process.
- How can I show observed years (instead of periods) along the X-axis on the historical decomposition graph?

Any solutions/suggestions would be greatly appreciated.

dsge_with_gov_new11.mod (15.1 KB)

Empirical_series.xlsx (10.5 KB)

Empirical_series.csv (1.4 KB)

It seems you did not provide the current `logDiff.mat`

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