Comparing Multi-State Kalman Filter and ARIMA forecasts: an application to the money multiplier

Rik Hafer (), Scott Hein and Clemens Kool

No 1985-001, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper derives one-month ahead forecasts of the money (M I) multiplier using the Multi-State Kalman Filter and Box-Jenkins ARIMA methods. A comparison of the forecasts far the period 1980-82 reveals that the Multi-State Kalman Filter procedure was generally superior to the ARIMA procedure In terms of most summary statistics. The superiority is traced to the turbulent period of 1980-81. This paper also compares aggregate and component forecasts of the multiplier. The aggregate Multi-State Kalman Filter was the most accurate in predicting the one-month ahead money multiplier.

Date: 1985
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