# Two independent questions in Dynare, help please!

Hello, Professor Pfeifer,

Thank you for coming into this post. I have got two independent questions when learning Dynare.

(1) It’s about observation equation in nonlinear model. If the Taylor Rule in the code is written like this:

model;

ReXU = rhotilUUReXU(-1) + (1-rhotilUU)(ReXUU+aptilUU*(piU(+1)-piUU)+aytilUU*(YU-YUU)) + e_xpU;
e_xpU=rho_m*e_xpU(-1)+em;
end;

em is the shock.

Typically, the ReXU in this whole model is** net** interest rate. So it may be different from the sample you displayed in paper “A Guide to Specifying Observation Equations for the Estimation of DSGE Models”.
Then in this case, If I use ReXU as the observe variable, how should I write the correct observation equation and how to deal with the raw data of ReXU ?
For instance, if the annualized data of ReXU is 5%, how should I deal with this 5% ?

(2) It’s about the timing convention. As a beginner, I am a little confused about how Dynare deal with the time of variables. The introduction about this part is not quite detail in the User Guide.

I know that the capital stock K is the most commonly used as predetermind variable in the paper. But for other variables, how could I tell if they are predetermind or not ? How could I find the correct timing of them ?

I am looking forward to your kindly reply, thank you so much !

1. You need to make sure the two concepts are the same. If you model variables is the quarterly net interest rate, then equations 52 and 53 in my guide are the ones to use. They describe how to construct the quarterly net interest rate in the data.

2. This is given by the economic structure of your model. A predetermined variable is one that cannot be altered today, because it is determined by a decision taken yesterday. For example, capital is predetermined, because it is determined by yesterday’s investment. You cannot affect it at time t, because investment today (the choice variable) only affects capital at t+1. Another example is nominal bonds, because the are going to pay a fixed nominal claim today that cannot be altered today. Rather, it was yesterday’s price that adjusted.