Tractable Latent State Filtering for Non-Linear DSGE Models Using a Second-Order Approximation
Robert Kollmann ()
No ECARES 2013-24, Working Papers ECARES from ULB -- Universite Libre de Bruxelles
This paper develops a novel approach for estimating latent state variables of Dynamic Stochastic General Equilibrium (DSGE) models that are solved using a second-order accurate approximation. I apply the Kalman filter to a state-space representation of the second-order solution based on the ‘pruning’ scheme of Kim, Kim, Schaumburg and Sims (2008). By contrast to particle filters, no stochastic simulations are needed for the filter here--the present method is thus much faster. In Monte Carlo experiments, the filter here generates more accurate estimates of latent state variables than the standard particle filter. The present filter is also more accurate than a conventional Kalman filter that treats the linearized model as the true data generating process. Due to its high speed, the filter presented here is suited for the estimation of model parameters; a quasi-maximum likelihood procedure can be used for that purpose.
Keywords: latent state filtering; estimation of DSGE models; second-order approximation; pruning; Kalman filter; particle filter; quasi-maximum likelihood (search for similar items in EconPapers)
JEL-codes: C63 C68 E37 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-ore
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Working Paper: Tractable Latent State Filtering for Non-Linear DSGE Models Using a Second-Order Approximation (2013)
Working Paper: Tractable latent state filtering for non-linear DSGE models using a second-order Approximation (2013)
Working Paper: Tractable latent state filtering for non-linear DSGE models using a second-order approximation (2013)
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