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Hi, I'm having some trouble in estimating the Nelson Siegel model with the Kalman Filter according to the metodology presented in the paper "The macroeconomy and the yield curve: a dynamic latent factor approach". Can I share some ideas with someone who is familiar with this approach.

The model is ill-defined. Those macro variables are observed, so you cannot define them as state variables. However, you can put them into state equations as exogenous variables. If you are trying to build an endogenous relationship between them, you should put them into signal equation. You cannot...

ok, I have attached the workfile.

Hi, I'm tring to replicate the paper:" The Macroeconomy and the yield curve: a dynamic latent factor approach", in which the yield curve is summarized using latent factors (level=sv1, slope=sv2 and curvature=sv3). I have no estimation problems with the first specification, only with latent...