Sigma point filters for dynamic nonlinear regime switching models

Andrew Binning and Junior Maih

No 2015/10, Working Paper from Norges Bank

Abstract: In this paper we take three well known Sigma Point Filters, namely the Unscented Kalman Filter, the Divided Difference Filter, and the Cubature Kalman Filter, and extend them to allow for a very general class of dynamic nonlinear regime switching models. Using both a Monte Carlo study and real data, we investigate the properties of our proposed filters by using a regime switching DSGE model solved using nonlinear methods. We find that the proposed filters perform well. They are both fast and reasonably accurate, and as a result they will provide practitioners with a convenient alternative to Sequential Monte Carlo methods. We also investigate the concept of observability and its implications in the context of the nonlinear filters developed and propose some heuristics. Finally, we provide in the RISE toolbox, the codes implementing these three novel filters.

Keywords: Regime Switching; Higher-order Perturbation; Sigma Point Filters; Nonlinear DSGE estimation; Observability (search for similar items in EconPapers)
Pages: 35 pages
Date: 2015-05-18
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Citations: View citations in EconPapers (20)

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http://www.norges-bank.no/en/Published/Papers/Working-Papers/2015/102015/

Related works:
Working Paper: Sigma Point Filters For Dynamic Nonlinear Regime Switching Models (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2015_10

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