In a DSGE with a stock market, which state variable is most suitable for observable stock price growth rate? the growth rate of firms’ net worth (firm issues stocks) or capital price growth rate or capital return? In my model, I do not have the stock price state variable to match observable stock price growth rate, I only have state variables of firms’ net worth, capital price and capital return.
Thank you very much and look forward to hearing from you.
You should follow the literature and define stocks as a claim to the value of the firm. See e.g. DSGE_mod/Jermann_1998.mod at master · JohannesPfeifer/DSGE_mod · GitHub or DSGE_mod/Basu_Bundick_2017.mod at master · JohannesPfeifer/DSGE_mod · GitHub
P.S.: It’s not about state variables (which are predetermined), but the correspondence of endogenous variables to the data.