Kalman filter in vecm

[chiade]

Hi,

I am trying to use kalman filter (KF) for the cointegration relation and for alpha in VECM. I have purchased a copy of CATS v2 and RATS v8.01. I have studied the manuals for both and there were no mention of kalman filter in the CATS manual. there was a major section of KF in RATS manual but no mention how it could beinserted into VECM. Does anyone has the code for this or how to go about doing it? I need it for my thesis and appreciate all help. Many thanks in advance.

Des

[TomDoan]

You can't find that because you can't do that with the Kalman filter. If you fix the cointegating vector, you can Kalman filter over the rest of the model (short-run dynamics and loadings on the CI) since, given beta, the model is linear. However, the beta itself has to be estimated by a reduced rank regression which can't be done using a simple recursion like the KF. CATS includes recursive analysis for cointegration which is done by re-estimating the model for different ranges, as is described for other types of non-linear models in section 11.2 of the version 8 User's Guide.