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    This document discusses state space representations of dynamic models. It begins by motivating state space forms and providing examples of how models can be written in this way. Key ingredients of a state space model include a transition equation describing the dynamic "states" of the system and an observation equation relating the states to observable variables. The document then covers applications like dynamic factor models, forecasting the yield curve through no-arbitrage models, and constructing coincident economic indexes. Overall, the state space representation provides a flexible framework for statistical inference and parameter estimation in dynamic models using techniques like the Kalman filter.

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    This document discusses state space representations of dynamic models. It begins by motivating state space forms and providing examples of how models can be written in this way. Key ingredients of a state space model include a transition equation describing the dynamic "states" of the system and an observation equation relating the states to observable variables. The document then covers applications like dynamic factor models, forecasting the yield curve through no-arbitrage models, and constructing coincident economic indexes. Overall, the state space representation provides a flexible framework for statistical inference and parameter estimation in dynamic models using techniques like the Kalman filter.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    5 views50 pages

    L-10 State Space Representation of Dynamic Models - KH

    Uploaded by

    لاضاهض
    This document discusses state space representations of dynamic models. It begins by motivating state space forms and providing examples of how models can be written in this way. Key ingredients of a state space model include a transition equation describing the dynamic "states" of the system and an observation equation relating the states to observable variables. The document then covers applications like dynamic factor models, forecasting the yield curve through no-arbitrage models, and constructing coincident economic indexes. Overall, the state space representation provides a flexible framework for statistical inference and parameter estimation in dynamic models using techniques like the Kalman filter.

    Copyright:

    © All Rights Reserved
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    of 50

    L10 – State Space

    Representation of Dynamic
    Models

    Central Bank of Algeria Presenter


    Course on Macroeconomic Forecasting Kaddour Hadri
    March 2, 2017
    Outline of Lecture

    • Motivation and introduction to the “State Space


    Representation”

    • Examples of how models can be written in “State Space”


    form

    • Some empirical applications

    2
    Why learn State Space (SS) representations?

    • The state space representation is a very general


    framework for expressing a broad set of dynamic
    models.

    • It also allow us to perform statistical inference in a


    dynamic model using the Kalman Filter (KF).

    • We can estimate the unknown parameters in the state


    space representation using maximum likelihood and/or
    Bayesian methods.

    3
    Why learn SS representation? (cont.)

    • The state space representation is central to:

    1. Dynamic macroeconomic modeling

    2. Recursive macroeconomic theory

    3. Macroeconometric methods in general

    4
    Key Ingredients of a State Space Model

    • A dynamic transition equation for the “states” of the system,


    which in general are unknown [Transition or State Equation]

    • Equation that relates “states” with observable variables


    [Measurement or Observation Equation]

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    Dynamic Factor Models
    A coincident index is a single summary statistic that tracks
    the current state of the economy. The index is computed
    from a number of data series that move systematically
    with overall economic conditions. A rise in the index
    indicates an expansion of economic activity and a decline
    in the index indicates a contraction in economic activity.
    Ex: regional indexes are computed using data on
    employment, real earnings, the unemployment rate and
    average weekly hours worked in manufacturing. The
    estimated Coincident Indexes are then calibrated to
    match the mean and standard deviation of their
    respective real earnings series.

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    Forecasting the Yield Curve (cont)

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    Forecasting the Yield Curve (cont.)

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