First thank you for your previous guidance, I am grateful.
I looked at 's paper, and find that sizes of all shocks except sentiment shock is set to 0.01, however, the size of sentiment shock is set to 0.1, 10 times larger than ordinary shocks, I am wondering that intuitively why size of sentiment shock should be greater than other shocks?DSGEmodelofStockBubblesandBusinessCycles.pdf (522.6 KB) ,in this paper published in Quantitative Economy, on page 21 (right top original page 619), I find prior standard error of sentiment shock is set to 0.1, whereas the remaining prior standard errors of shocks are set to 0.01.
Thank you very much and look forward to hearing from you.
The authors justify their choice with the following
" The prior for σi follows an inverse Gamma distribution with mean 1 percent and standard deviation \infty, except for \sigma_\theta. For the sentiment shock \sigma_\theta, we assume that the prior mean of \sigma_\theta is equal to 10 percent. The choice of this high prior volatility is based on the fact that the stock price is the main data used to identify the sentiment shock. Since we know that the stock market is very volatile, it is natural to specify a large prior volatility for the sentiment shock. As a robustness check, we also consider the prior mean 1 percent of \sigma_\theta and find similar
results (see Appendix E)."