Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5056056 | Economic Modelling | 2008 | 19 Pages |
Abstract
Previous attempts at modelling current observed endogenous financial variables in a macroeconomic model have concentrated on only one variable - the short-term rate of interest. This paper applies a general search algorithm to a macroeconomic model with an observed interest rate and exchange rate to solve the signal extraction problem. Firstly, the algorithm is tested against a linear model with a known analytical solution. Then, the algorithm is applied to all the observed current endogenous variables in a non-linear rational expectations model of the UK. The informational advantage of applying the signal extraction algorithm is evaluated in terms of the forecasting efficiency of the model.
Related Topics
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Economics, Econometrics and Finance
Economics and Econometrics
Authors
L. Lungu, K.G.P. Matthews, A.P.L. Minford,