Estimating BSP Model of Rabanal-Rameraz 2005

[wmmahrous]

Dear all,
Here I'm attaching Dynare code for estimating Rabanal-Rameraz BSP model (2005). I'm trying to modify the model by getting rid of real wages as an observed variable, because I don't have enough data about it for the country I am gonna apply this model on (Tanzania). Is it right to skip any shock (because the model has 4 shocks and four observed variables) to balance for the new number of observed variables? or Do I have to skip a specific shock? In my attached file you will find that I'm skipping the mark-up price shock...I'm waiting for your replies.
Thanks in advance,
Walaa Mahrous.

BSP model.mod

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[jpfeifer]

In general, to avoid stochastic singularity, you need at least as many shocks as observed variables. Having more shocks should be no problem. So you could just drop the variable from var_obs and leave everything else unaffected. If you want to omit a shock, use one that is empirically not important.

[wmmahrous]

jpfeifer....Thank you so much...I really appreciate your advice