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Computing observation weights for signal extraction and filtering

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  • Koopman, Siem Jan
  • Harvey, Andrew

Abstract

We present algorithms for computing the weights implicitly assigned to observations when estimating unobserved components using a model in state space form. The algorithms are for both filtering and signal extraction. In linear time-invariant models such weights can sometimes be obtained analytically from the Wiener-Kolmogorov formulae. Our method is much more general, being applicable to any model with a linear state space form, including models with deterministic components and time-varying state matrices. It applies to multivariate models and it can be used when there are data irregularities, such as missing observations. The algorithms can be useful for a variety of purposes in econometrics and statistics: (i) the weights for signal extraction can be regarded as equivalent kernel functions and hence the weight pattern can be compared with the kernels typically used in nonparametric trend estimation; (ii) the weight algorithm for filtering implicitly computes the coefficients of the vector error-correction model (VECM) representation of any linear time series model; (iii) as a by-product the mean square errors associated with estimators may be obtained; (iv) the algorithm can be incorporated within a Markov chain Monte Carlo (MCMC) method enabling computation of weights assigned to observations when computing the posterior mean of unobserved components within a Bayesian treatment. A wide range of illustrations show how the algorithms may provide important insights in empirical analysis. The algorithms are provided and implemented for the software package SsfPack 2.3 , that is a set of filtering, smoothing and simulation algorithms for models in state space form (see www.ssfpack.com). Some details of implementation and example programs are given in the appendix of the paper.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 27 (2003)
Issue (Month): 7 (May)
Pages: 1317-1333

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Handle: RePEc:eee:dyncon:v:27:y:2003:i:7:p:1317-1333

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  1. Koopman, S.J.M. & Shephard, N. & Doornik, J.A., 1998. "Statistical Algorithms for Models in State Space Using SsfPack 2.2," Discussion Paper 1998-141, Tilburg University, Center for Economic Research.
  2. Neil Shephard & Michael K Pitt, 1995. "Likelihood analysis of non-Gaussian parameter driven models," Economics Papers 15 & 108., Economics Group, Nuffield College, University of Oxford.
  3. Andrew Harvey & Chia-Hui Chung, 2000. "Estimating the underlying change in unemployment in the UK," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 163(3), pages 303-309.
  4. Harvey, A.C. & Koopman, S.J.M., 1999. "Signal Extraction and the Formulation of Unobserved Components Models," Discussion Paper 1999-44, Tilburg University, Center for Economic Research.
  5. Balke, Nathan S, 1993. "Detecting Level Shifts in Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 11(1), pages 81-92, January.
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