How to deal with unobservable variables in economics
AbstractThe paper discusses different methods to deal with unobservable variables: Kalman-Filtering, principal components, factor analysis, LISREL, MIMIC, DYMIMIC, PLS with respect to parameter estimation and forecasting. We got very good results by an extension of Kalman-Filtering called AS (general stationary parameter model). LISREL proved to be superior to PLS in parameter estimation. Explicit introduction of the latent variables "mood" of the economic agents, the "political trend" and "social stability" improved the forecasting performance of an econometric model of the FRG.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 414.
Date of creation: Aug 1997
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parameter estimation; forecasting; Germany; Schneewei�;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-02-07 (All new papers)
- NEP-ECM-2000-02-07 (Econometrics)
- NEP-HIS-2000-02-07 (Business, Economic & Financial History)
- NEP-IND-2000-02-07 (Industrial Organization)
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- Engle, Robert F. & Lilien, David M. & Watson, Mark, 1985. "A dymimic model of housing price determination," Journal of Econometrics, Elsevier, vol. 28(3), pages 307-326, June.
- Geweke, John F. & Singleton, Kenneth J., 1981. "Latent variable models for time series : A frequency domain approach with an application to the permanent income hypothesis," Journal of Econometrics, Elsevier, vol. 17(3), pages 287-304, December.
- Watson, Mark W. & Engle, Robert F., 1983. "Alternative algorithms for the estimation of dynamic factor, mimic and varying coefficient regression models," Journal of Econometrics, Elsevier, vol. 23(3), pages 385-400, December.
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