Measurement equation

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Measurement equation

Postby tophukg » Tue Feb 25, 2014 9:40 am

Hello everybody,
I'm a student and i'm a new dynare user. In paper "Estimating a small open economy DSGE model with indeterminacy: Evidence from China". As data description, they have:
Output gap : Gap_t = 100*ln(Y_t/Ys_t); Y_t : real GDP, Ys_t : potential output.
Inflation rate: Inf_t = 400*ln(P_t/P_t(-1)); P_t : CPI
Nominal Interest Rate : R = CHIBOR (China inter-bank offered rate).
Then they have measurement equations :
Gap_t = y_t
Inf_t = 4*pi_t
R = 4*R_t
But, in Lubika and Schorfheide (2007): The measurement equations:
output growth : deltaY_t = gammaQ + y_t - y_t(-1) + z_t
Inflation rate : Inf_t = piA + pi_t
Interest rate : Rob_t = piA + rA+ 4*gammaQ + R_t
Both of them have the same data description ( except output gap ). But , they have difference measurement equations.
Any ideas about why? Which measurement equations should i choose ? I have the same data with China case. My english is not good, sorry for any mistake
Thank you in advance for your help.
tophukg
 
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Re: Measurement equation

Postby jpfeifer » Sun Mar 02, 2014 11:29 am

Please see Pfeifer(2013): "A Guide to Specifying Observation Equations for the Estimation of DSGE Models" https://sites.google.com/site/pfeiferecon/Pfeifer_2013_Observation_Equations.pdf.
The main difference in your description seems to be whether the model is written down in stationary form and whether the data was demeaned.
------------
Johannes Pfeifer
University of Cologne
https://sites.google.com/site/pfeiferecon/
jpfeifer
 
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