state space model complicacy.
Posted: Mon Dec 14, 2009 2:22 pm
This is a state space model which has been structured to estimate the potential GDP, Natural rate of interest and Trend growith rate and other set of exogenous factors (all unobservables) under the light of Laubach and Williams model 2003
@signal 100*(y-sv1)=c(1)*100*(y(-1)-sv1)+c(2)*(r(-1)-sv2)+[var=exp(c(3))]
@signal p=c(4)*p(-1)+c(5)*100*(y(-1)-sv1)+[var=exp(c(6))]
@state sv2=c(7)*sv3+sv4
@state sv4=c(8)*sv4(-1)+[var=exp(c(9))]
@state sv1=sv1(-1)+sv3(-1)+[var=exp(c(10))]
@state sv3=sv3(-1)+[var=exp(c(11))]
Where y is the output
r is the real interest rate
In this model (Y-SV1) represents the output gap which is a function of its own lag and the lagged difference between the real interest rate and natural rate of Interest. The first equation being aggregate demand equation and the Second being aggregate supply equation.
In this model SV1 is the potential GDP, Sv2 is the Natural rate of interest, and SV3 is the trend growth rate and SV4 is the other set of exogenous factors. The problem is Eviews is not helping me out in estimating the model by giving two common errors
SV1 is not defined
SV4 is not allowed
Can somebode come up with a solution to this? can someone guide me through this that what's wrong in this specification?
@signal 100*(y-sv1)=c(1)*100*(y(-1)-sv1)+c(2)*(r(-1)-sv2)+[var=exp(c(3))]
@signal p=c(4)*p(-1)+c(5)*100*(y(-1)-sv1)+[var=exp(c(6))]
@state sv2=c(7)*sv3+sv4
@state sv4=c(8)*sv4(-1)+[var=exp(c(9))]
@state sv1=sv1(-1)+sv3(-1)+[var=exp(c(10))]
@state sv3=sv3(-1)+[var=exp(c(11))]
Where y is the output
r is the real interest rate
In this model (Y-SV1) represents the output gap which is a function of its own lag and the lagged difference between the real interest rate and natural rate of Interest. The first equation being aggregate demand equation and the Second being aggregate supply equation.
In this model SV1 is the potential GDP, Sv2 is the Natural rate of interest, and SV3 is the trend growth rate and SV4 is the other set of exogenous factors. The problem is Eviews is not helping me out in estimating the model by giving two common errors
SV1 is not defined
SV4 is not allowed
Can somebode come up with a solution to this? can someone guide me through this that what's wrong in this specification?