Questions about estimation (first time with Dynare)
Posted: Sat Jul 03, 2010 8:52 pmHi,
I have some questions about estimating parameters of a DSGE model. I am quite new to this whole topic. I shall be very thankful if anyone could answer these.
I have a DSGE model and since I wanted to log linearize I entered all the variables as exp(W) for wage, exp(C) for consumption, exp(P) for price etc. The original data (when taken in logs) has unit root of order one.
1. How should I enter the data for Dynare? Should I de-trend it and de-mean it? Or is it ok to just de-trend it? Does it make sense to de-trend using log-difference?
2. The model has price (exp(P)) and inflation (exp(Pi)). If I am using log-difference to de-trend, then should I use it for inflation or for original price? To be consistent, if I am using log deviation for W, then the log deviation of price should be the data for P. But then log deviation is actually the inflation. I am very confused in this part.
3. How sensitive is the estimation to the de-trending method?
Thanks.
I have some questions about estimating parameters of a DSGE model. I am quite new to this whole topic. I shall be very thankful if anyone could answer these.
I have a DSGE model and since I wanted to log linearize I entered all the variables as exp(W) for wage, exp(C) for consumption, exp(P) for price etc. The original data (when taken in logs) has unit root of order one.
1. How should I enter the data for Dynare? Should I de-trend it and de-mean it? Or is it ok to just de-trend it? Does it make sense to de-trend using log-difference?
2. The model has price (exp(P)) and inflation (exp(Pi)). If I am using log-difference to de-trend, then should I use it for inflation or for original price? To be consistent, if I am using log deviation for W, then the log deviation of price should be the data for P. But then log deviation is actually the inflation. I am very confused in this part.
3. How sensitive is the estimation to the de-trending method?
Thanks.