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What do the asterisks signify?
Posted: Thu Jun 16, 2016 9:18 am
by vanitymdl
I am currently reading the Stock and Watson Methodology for Businesses Cycle indexes, specifically the coincident index. After reading most of their previous work on this study, I can't figure out what the asterisks signify once they introduced the transition equation (pg.7). I know they show what some variables are with the notation, but I want to know the difference between the variables with the asterisks and the ones that do no include the asterisks. Any comments will be greatly appreciated
Re: What do the asterisks signify?
Posted: Fri Jun 17, 2016 4:07 am
by dakila
It says equation 8 is transition equation, more specifically equation 8 is in VAR(1) form.
In contrast, equation 5 and 6 are AR(p) and VAR(k) respectively. In order to estimate unobservable variable C(t) and u(t), we need transform equation 5 and 6 into VAR(1) form. Otherwise we can't use Kalman filter.
Re: What do the asterisks signify?
Posted: Mon Jun 20, 2016 8:15 am
by vanitymdl
It says equation 8 is transition equation, more specifically equation 8 is in VAR(1) form.
In contrast, equation 5 and 6 are AR(p) and VAR(k) respectively. In order to estimate unobservable variable C(t) and u(t), we need transform equation 5 and 6 into VAR(1) form. Otherwise we can't use Kalman filter.
Thank you for the reply, but I am still confused one what is the difference between C(t) and C(t)*?