Read e-book online A Continuous Time Econometric Model of the United Kingdom PDF

By Albert Rex Bergstrom, Khalid Ben Nowman

Over the past thirty years there was large use of constant time econometric tools in macroeconomic modelling. This monograph provides the 1st non-stop time macroeconometric version of the uk incorporating stochastic traits. Its improvement represents a big leap forward in non-stop time macroeconomic modelling. The e-book describes the recent version intimately and, like previous versions, it truly is designed in this sort of manner as to allow a rigorous mathematical research of its steady-state and balance houses, therefore delivering a helpful fee at the potential of the version to generate believable long-run behaviour. The version is anticipated utilizing newly built particular Gaussian estimation equipment for non-stop time econometric versions incorporating unobservable stochastic developments. The booklet additionally comprises dialogue of the appliance of the version to dynamic research and forecasting.

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Extra info for A Continuous Time Econometric Model of the United Kingdom with Stochastic Trends

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3 Introduction to General Continuous Time Models We present in this section a review of the general form of continuous time models and the basic ideas of econometric estimation using discrete time data. 1) where x(t) = {x1 (t), . . , xn (t)} is a n-dimensional continuous time random process, A(θ) is an n × n matrix whose elements are functions of a vector θ = [θ1 , . . , θ p ] of unknown structural parameters ( p ≤ n(n + 1)) and b(θ) is a vector that is a function of θ . The error term ζ(dt) is assumed to be a vector of white noise innovations (see Bergstrom 9 Continuous Time Econometric Model of UK with Stochastic Trends [1984a] for a precise definition and interpretation of this system).

In Bergstrom and Nowman [1999] they applied Gaussian estimation methods and derived the exact discrete model and the exact Gaussian likelihood function for the Babbs and Nowman [1999] model. More recently, Nowman [2001, 2003, 2006] considered the Gaussian estimation of multi-factor CKLS and CIRSR models and empirical applications on Japanese interest rate data indicated various level effects for the CKLS 30 Introduction to Continuous Time Modelling ˇ [2003] model in the multi-factor cases. Recently, Saltoglu applied Gaussian estimation to the Brennan and Schwartz [1979] model.

They dealt with the most general case of n-factors and derived the general pure discount bond price for the model. 19) j=1 where µ is a constant representing the long-run average rate and X1 (t), . . , X J (t) are unobserved state variables representing the current effect of J streams of economic “news”. The “news” streams for example may represent interest rate 29 Continuous Time Econometric Model of UK with Stochastic Trends rumours from the Monetary Policy Committee of the Bank of England or the Bank of Japan’s Policy Board Meetings on monetary policy and long-term economic news representing monthly and quarterly economic statistics that all effect the yield curve.

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