Dynamic factor models based on Kalman Filter techniques are frequently used to nowcast GDP. This study deals with the selection of indicators for this practice. We propose a two-tiered mechanism which is shown in a case study to produce more accurate nowcasts than a benchmark stochastic process...

The neutral band is the interval where deviations from Covered Interest Parity (CIP) are not considered meaningful arbitrage opportunities. The band is determined by transaction costs and risk associated to arbitrage. Seemingly large deviations from CIP in the foreign exchange markets for the US...

In a linear state space model Y(t)=BT(t) e(t), we investigate if the unobserved trend, T(t), cointegrates with the predicted trend, E(t), and with the estimated predicted trend, in the sense that the spreads are stationary. We find that this result holds for the spread B(T(t)-E(t)) and the...

The estimation and the analysis of long memory parameters have mainly focused on the analysis of long-range dependence in stock return volatility using traditional time and spectral domain estimators of long memory. The definitive ubiquity and existence of long memory in the volatility of stock...

The paper assesses the impact of adding information on financial cycles on the output gap estimates for eight advanced economies using two unobserved components models: a reduced form extended Hodrick-Prescott filter, and a standard semi-structural unobserved components model. To complement...

This technical note gives implementation notes for estimating the Koijen-Nijman-Werker model from historical data based on a Kalman filter. We provide an independent derivation of the KNW model. We propose a different implementation of the state-space formulation of the KNW model and we test the...

This paper analyses identification for multivariate unobserved components models in which the innovations to trend and cycle are correlated. We address order and rank criteria as well as potential non-uniqueness of the reduced-form VARMA model. Identification is shown for lag lengths larger than...

In this discussion paper we introduce time-varying parameters in the dynamic Nelson–Siegel yield curve model for the simultaneous analysis and forecasting of interest rates of different maturities. The Nelson–Siegel model has been recently reformulated as a dynamic factor model with vector...

State space models with nonstationary processes and fixed regression effects require a state vector with diffuse initial conditions. Different likelihood functions can be adopted for the estimation of parameters in time series models with diffuse initial conditions. In this paper we consider...

We consider the problem of smoothing data on two-dimensional grids with holes or gaps. Such grids are often referred to as difficult regions. Since the data is not observed on these locations, the gap is not part of the domain. We cannot apply standard smoothing methods since they smooth over...