Unobserved components models with lagged dependent variable
Posted: Sun Mar 22, 2015 8:09 pm
Hi everybody!
I want to estimate a unobserved components model with explanatory variables.
Thereby the explanatory variables include also a lagged dependent variable y(t-1) (the remaining terms are other lagged variables of order (t-1)).
By means of the aforementioned model i want to calculate one-step-ahead out-of-sample forecasts with recursive parameter estimation.
I know i can manage a recursive forecasting scheme with time-varying parameters including in the state vector.
The usual approach is to specify a random walk specification for the parameters.
But is this viable for the parameter of the lagged dependent variable?
Literature suggests, that time-varying parameters of lagged dependent variables need some degree of continuity.
Are there specifications which are more suitable?
I thank you very much for a discussion.
Many greetings from Germany, Yohan.
I want to estimate a unobserved components model with explanatory variables.
Thereby the explanatory variables include also a lagged dependent variable y(t-1) (the remaining terms are other lagged variables of order (t-1)).
By means of the aforementioned model i want to calculate one-step-ahead out-of-sample forecasts with recursive parameter estimation.
I know i can manage a recursive forecasting scheme with time-varying parameters including in the state vector.
The usual approach is to specify a random walk specification for the parameters.
But is this viable for the parameter of the lagged dependent variable?
Literature suggests, that time-varying parameters of lagged dependent variables need some degree of continuity.
Are there specifications which are more suitable?
I thank you very much for a discussion.
Many greetings from Germany, Yohan.