Filtering with Limited Information

Thorsten Drautzburg, Fernández-Villaverde, Jesús, Pablo Guerron and Dick Oosthuizen
Authors registered in the RePEc Author Service: Jesus Fernandez-Villaverde

No 19270, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We propose a new tool to filter non-linear dynamic models that does not require the researcher to specify the model fully and can be implemented without solving the model. If two conditions are satisfied, we can use a flexible statistical model and a known measurement equation to back out the hidden states of the dynamic model. The first condition is that the state is sufficiently volatile or persistent to be recoverable. The second condition requires the possibly non-linear measurement to be sufficiently smooth and to map uniquely to the state absent measurement error. We illustrate the method through various simulation studies and an empirical application to a sudden stops model applied to Mexican data.

Date: 2024-07
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Working Paper: Filtering with Limited Information (2024)
Working Paper: Filtering with Limited Information (2024)
Working Paper: Filtering with Limited Information (2024)
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