Norges Bank

Working Paper

Sigma point filters for dynamic nonlinear regime switching models

Author:
Andrew Binning and Junior Maih
Series:
Working Paper
Number:
10/2015

Abstract

In this paper we take three well known Sigma Point Filters, namely the Unscented Kalman Filter, the Divided Difference Filter, and the Cubature Kalman Filter, and extend them to allow for a very general class of dynamic nonlinear regime switching models. Using both a Monte Carlo study and real data, we investigate the properties of our proposed filters by using a regime switching DSGE model solved using nonlinear methods. We find that the proposed filters perform well. They are both fast and reasonably accurate, and as a result they will provide practitioners with a convenient alternative to Sequential Monte Carlo methods. We also investigate the concept of observability and its implications in the context of the nonlinear filters developed and propose some heuristics. Finally, we provide in the RISE toolbox, the codes implementing these three novel filters.

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ISSN 1502-8190 (online)

Published 19 May 2015 09:55
Published 19 May 2015 09:55