Tractable Latent State Filtering for Non-Linear DSGE Models Using a Second-Order Approximation

CAMA Working Paper 29/2013

21 Pages Posted: 8 Jun 2013

See all articles by Robert Kollmann

Robert Kollmann

ECARES, Université Libre de Bruxelles; University of Paris XII - Department of Economics; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2013

Abstract

This paper develops a novel approach for estimating latent state variables of Dynamic Stochastic General Equilibrium (DSGE) models that are solved using a second-order accurate approximation. I apply the Kalman filter to a state-space representation of the second-order solution based on the ‘pruning’ scheme of Kim, Kim, Schaumburg and Sims (2008). By contrast to particle filters, no stochastic simulations are needed for the filter here -- the present method is thus much faster. In Monte Carlo experiments, the filter here generates more accurate estimates of latent state variables than the standard particle filter. The present filter is also more accurate than a conventional Kalman filter that treats the linearized model as the true data generating process. Due to its high speed, the filter presented here is suited for the estimation of model parameters; a quasimaximum likelihood procedure can be used for that purpose.

Keywords: latent state filtering, estimation of DSGE models, second-order approximation, pruning, Kalman filter, particle filter, quasi-maximum likelihood

JEL Classification: C63, C68, E37

Suggested Citation

Kollmann, Robert, Tractable Latent State Filtering for Non-Linear DSGE Models Using a Second-Order Approximation (May 2013). CAMA Working Paper 29/2013 , Available at SSRN: https://ssrn.com/abstract=2275686 or http://dx.doi.org/10.2139/ssrn.2275686

Robert Kollmann (Contact Author)

ECARES, Université Libre de Bruxelles ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium

University of Paris XII - Department of Economics ( email )

61 avenue du General de Gaulle
Creteil cedex, 94010
France

HOME PAGE: http://www.robertkollmann.com

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
17
Abstract Views
308
PlumX Metrics