dealing with bad/unobservable data

[Pert]

How does one deal with bad/unobservable data? For example, in Smets-Wouters (2003), the authors said "as we do not have good measures of the area-wide capital stock, the value of capital or the rental rate on capital, we will assume these variables are not observed". Similarly, my problems is that I have a bad real wage data, which I want to treat as unobservable. So how does one goes about that? How does one estimate/do it in dynare? any reference/readings you can recommend *on the actual estimation implementation* (I know in principle it is possible in Bayesian estimation, but my question goes more on actual (Dynare) estimation, step by step.)

Thank you in advance for any help/recommendation!

[AssiaEzzeroug]

Hi,

if your wage series r not good enough such as you don't wanna use them as observable, just don't specify in Dynare the wage variable in the instruction "varobs ;"
Sometimes there might be a way to use this information by introduced a measurement equation in the block "model" and as far as I remember thats what SW(2003) did
with employment (due to missing values issue)..

Hope this helps

[Pert]

Hi, thank you for the reply.
Just a little follow up -- sorry I am new to Dynare. So, how do I tell Dynare: estimate the unobservable wage data? Or how do I tell dynare: ok, my model includes real wage, but you have to estimate the model without the data (on real wage) -- what do I write in the instructions? I would appreciate details -- step by step explanation -- thank you!

[Pert]

does anybody have the Smets-Wouters 2003 code and data by the way? (I have the SW AER 2007). Thanks again!

[pakocica]

Dear Pert,
I think you should read the Dynare documentation more carefully.

Regarding the Smets-Wouters 2003 code. You can search for "Smets" in this forum and you will find some posts regarding the 2003 version of the code. You can contact those people directly - they should probably have the code.

Regards,
Pavel