Specifying observation equation for interest rate

[jpfeifer]

Denote with R_t_obs the quarterly gross interest rate. Then, if

model interest rate is defined in gross terms i.e. R_t =(1+r_t)

and no logging has taken place to derive a loglinearization, you should have

R_t=1+R_t_obs/400

See also section 4.5.3 of Pfeifer(2013): “A Guide to Specifying Observation Equations for the Estimation of DSGE Models”