Dear forum,
I would like to ask principally about how to address targeting correlations when using the built-in “method_of_moments” function with “mom_method = SMM.”
As outlined in the manual, in the “matched_moments” block only linear product moments are supported, i.e., xx corresponds to the variance E[x^2] or xy corresponds to the covariance E[x*y]. However, I would like to target correlations. I have tried targeting the variance of x and of y and then their covariance to indirectly target the correlation of x and y, but that did not bring me close to the targets at all. I have also thought about introducing some auxiliary variables defined as normalized variables by their standard deviations, but I was not successful.
michal_example_smm.txt (8.7 KB)
The background is that I have my own SMM routine based on “fmincon” which iterates over Dynare simulations and which was bringing me quite close to the moments. I wanted to use the built-in Dynare routines to improve upon the result, but it does not work, presumably because I cannot deal with the correlation directly.
Would you have some suggestions or proposals please?
Many thanks in advance for your time and help!
Cheers,
Michal