Continuous Time Model Estimation

Carl Chiarella () and Shenhuai Gao
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Shenhuai Gao: School of Economics and Political Science, University of Sydney

No 138, Working Paper Series from School of Finance and Economics, University of Technology, Sydney

Abstract: This paper introduces an easy to follow method for continuous time model estimation. It serves as an introduction on how to convert a state space model from continuous time to discrete time, how to decompose a hybrid stochastic model into a trend model plus a noise model, how to estimate the trend model by simulation, and how to calculate standard errors from estimation of the noise model. It also discusses the numerical difficulties involved in discrete time models that bring about the unit roots illusion in econometrics.

Keywords: Continuous time model; Estimation; Trend and noise decomposition; Unit roots illusion (search for similar items in EconPapers)
JEL-codes: C13 C22 C32 C51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-ecm and nep-ets
Date: 2004-12-01

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