Article ID Journal Published Year Pages File Type
5056056 Economic Modelling 2008 19 Pages PDF
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
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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