The Endogenous Kalman Filter
AbstractWe relax the assumption of full information that underlies most dynamic general equilibrium models, and instead assume agents optimally form estimates of the states from an incomplete information set. We derive a version of the Kalman filter that is endogenous to agents' optimising decisions, and state conditions for its convergence. We show the (restrictive) conditions under which the endogenous Kalman filter will at least asymptotically reveal the true states. In general we show that incomplete information can have significant implications for the time-series properties of economies. We provide a Matlab toolkit which allows the easy implementation of models with incomplete information.
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Bibliographic InfoPaper provided by Birkbeck, Department of Economics, Mathematics & Statistics in its series Birkbeck Working Papers in Economics and Finance with number 0719.
Date of creation: Nov 2007
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Find related papers by JEL classification:
- E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-03 (All new papers)
- NEP-DGE-2007-11-03 (Dynamic General Equilibrium)
- NEP-ECM-2007-11-03 (Econometrics)
- NEP-ETS-2007-11-03 (Econometric Time Series)
- NEP-MAC-2007-11-03 (Macroeconomics)
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