Estimating continuous time rational expectations models in frequency domain: a case study
This paper presents a completely worked example applying the frequency domain estimation strategy proposed by Hansen and Sargent [1980, 1981a]. A bivariate, high order continuous time autoregressive moving average model is estimated subject to the restrictions implied by the rational expectations model of the term structure of interest rates. The estimation strategy takes into account the fact that one of the data series are point-in-time observations, while the other are time averaged. Alternative strategies are considered for taking into account nonstationarity in the data. Computing times reported in the paper demonstrate that estimation using the techniques of Hansen and Sargent is inexpensive.
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- Phillips, P. C. B., 1973. "The problem of identification in finite parameter continuous time models," Journal of Econometrics, Elsevier, vol. 1(4), pages 351-362, December.
- Lars Peter Hansen & Thomas J. Sargent, 1980. "Methods for estimating continuous time Rational Expectations models from discrete time data," Staff Report 59, Federal Reserve Bank of Minneapolis.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Kohn, R, 1979. "Asymptotic Estimation and Hypothesis Testing Results for Vector Linear Time Series Models," Econometrica, Econometric Society, vol. 47(4), pages 1005-30, July.
- Sargan, J D & Bhargava, Alok, 1983. "Maximum Likelihood Estimation of Regression Models with First Order Moving Average Errors When the Root Lies on the Unit Circle," Econometrica, Econometric Society, vol. 51(3), pages 799-820, May.
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