On the Identification of Time Varying Structures

42 Pages Posted: 19 Jun 2004 Last revised: 27 Sep 2010

See all articles by Thomas F. Cooley

Thomas F. Cooley

New York University - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Kent D. Wall

Naval Postgraduate School

Date Written: May 1975

Abstract

The identifiability of reduced form econometric models with variable coefficients is investigated using the control theoretic concepts of uniform complete observability and uniform complete controllability. First, a variant of the state space representation of the traditional reduced form is introduced which transcribes the underlying non-stationary estimation problem into one particularly suited to a Kalman filtering solution. Using such a formulation, observability and controllability can be called upon to obtain a necessary and sufficient condition for identification of the specific parameterization. The results so obtained are completely analogous to those already established in the econometric literature, namely, that the parameters of the reduced form are always identified subject to the absence of multicollinearity(referred to as "persistent excitation" in the control literature). How-ever, now the multicollinearity condition is seen to depend on the structure of the parameter variations as well as the statistical nature of the explanatory variables. The verification of identifiability thus reduces to a check for uniform complete observability which can always be affected in econometric applications. Some consistency results are also presented which derive from the above approach.

Suggested Citation

Cooley, Thomas F. and Wall, Kent D., On the Identification of Time Varying Structures (May 1975). NBER Working Paper No. w0085. Available at SSRN: https://ssrn.com/abstract=259396

Thomas F. Cooley (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

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National Bureau of Economic Research (NBER)

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Kent D. Wall

Naval Postgraduate School

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Monterey, CA 93943-5201
United States

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