Dynare Estimation: help

[jpfeifer]

Please think about what you are doing before mechanically trying things.
1. If you have data in first differences, the observation equation needs to reflect this. See
2. Also, your output data has an endpoint problem. The last two observations are gigantic for some reason.
3. Why is your prior mean for the shock processes 1, i.e. 100 percent? A one standard deviation shock would then increase the observed series from e.g. 0 to 1. But the data has at most value of about 0.2. See "Remark 10 (Scaling With a Factor 100)" in Pfeifer (2013): "A Guide to Specifying Observation Equations for the Estimation of DSGE Models" at https://sites.google.com/site/pfeiferecon/Pfeifer_2013_Observation_Equations.pdf
4. Given your observables, eps_a_os is not identified. See the flat line for the likelihood in the mode_check plot.

[tjenny88]

thank you for your reply. this is the first time i am trying dynare. i am actually learning by doing.

1、i modify the observation equation by letting y_obs = y - y(-1). I wonder if i am using hp filter to detrend, how should i modify the observation equation?
2、i have deleted the last two observations.
3、now i understand remark 10. i changed the mean and std. for the shock process.
4、how can i solve the nonidentification problem? i don't know how to read mode-check plot?

After making these changes, i found figure 8, the smoothed estimated shocks (eps_a_os and eps_r ) is not centered around zero, how can i solve this problems?

[jpfeifer]

1. You need to demean the growth rates in the Excel file. Also, do not add mean and stdev at the end. Dynare will take them to be data points.
4. The only identification problem left is the one for epsilon. You try to estimate it, but epsilon does not show up at all in the model.

[jpfeifer]

For future reference, a replication file for the Gali/Monacelli (2005): Monetary Policy and Exchange Rate Volatility in a Small Open Economy", Review of Economic Studies 72, pp. 707-734 is available at https://github.com/JohannesPfeifer/DSGE_mod