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Approximate state space modelling of unobserved fractional components

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  • Tobias Hartl
  • Roland Jucknewitz

Abstract

We propose convenient inferential methods for potentially nonstationary multivariate unobserved components models with fractional integration and cointegration. Based on finite-order ARMA approximations in the state space representation, maximum likelihood estimation can make use of the EM algorithm and related techniques. The approximation outperforms the frequently used autoregressive or moving average truncation, both in terms of computational costs and with respect to approximation quality. Monte Carlo simulations reveal good estimation properties of the proposed methods for processes of different complexity and dimension.

Suggested Citation

  • Tobias Hartl & Roland Jucknewitz, 2022. "Approximate state space modelling of unobserved fractional components," Econometric Reviews, Taylor & Francis Journals, vol. 41(1), pages 75-98, January.
    • Handle: RePEc:taf:emetrv:v:41:y:2022:i:1:p:75-98
    DOI: 10.1080/07474938.2020.1841444
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    Cited by:

    1. Tobias Hartl & Rolf Tschernig & Enzo Weber, 2020. "Fractional trends in unobserved components models," Papers 2005.03988, arXiv.org, revised May 2020.
    2. Tobias Hartl & Roland Jucknewitz, 2023. "Multivariate Fractional Components Analysis," Journal of Financial Econometrics, Oxford University Press, vol. 21(3), pages 880-914.
    3. Ergemen, Yunus Emre & Rodríguez-Caballero, C. Vladimir, 2023. "Estimation of a dynamic multi-level factor model with possible long-range dependence," International Journal of Forecasting, Elsevier, vol. 39(1), pages 405-430.
    4. Federico Maddanu & Tommaso Proietti, 2023. "Trends in atmospheric ethane," Climatic Change, Springer, vol. 176(5), pages 1-23, May.
    5. Tobias Hartl, 2020. "Macroeconomic Forecasting with Fractional Factor Models," Papers 2005.04897, arXiv.org.
    6. Tobias Hartl & Rolf Tschernig & Enzo Weber, 2020. "Fractional trends and cycles in macroeconomic time series," Papers 2005.05266, arXiv.org, revised May 2020.

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