A State Space Approach to Extracting the Signal from Uncertain Data

45 Pages Posted: 3 Jan 2008

See all articles by Alastair Cunningham

Alastair Cunningham

Bank of England

Jana Eklund

Bank of England - Monetary Analysis

Christopher Jeffery

Bank of England

George Kapetanios

King's College, London

Vincent Labhard

European Central Bank (ECB) - Directorate General Economics

Date Written: November 2007

Abstract

Most macroeconomic data are uncertain - they are estimates rather than perfect measures. Use of these uncertain data to form an assessment of current activity can be viewed as a problem of signal extraction. One symptom of that uncertainty is the propensity of statistical agencies to revise their estimates in the light of new information or methodological advances. This paper sets out an approach to extracting the signal from uncertain data that takes the experience of past revisions as representative of the uncertainties surrounding the latest published estimates. Specifically, it describes a two-step estimation procedure in which the history of past revisions (real-time data) are first used to estimate the parameters of a measurement equation describing the official published estimates; and these parameters are then imposed in a maximum likelihood estimation of a state space representation of the 'true' profile of the macroeconomic variable.

Suggested Citation

Cunningham, Alastair and Eklund, Jana and Jeffery, Christopher and Kapetanios, George and Labhard, Vincent, A State Space Approach to Extracting the Signal from Uncertain Data (November 2007). Bank of England Working Paper No. 336, Available at SSRN: https://ssrn.com/abstract=1080189 or http://dx.doi.org/10.2139/ssrn.1080189

Alastair Cunningham

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

Jana Eklund (Contact Author)

Bank of England - Monetary Analysis ( email )

Threadneedle Street
MA-3, HO-2(A-B)
London EC2R 8AH
United Kingdom
+44 20 7601 3267 (Phone)

Christopher Jeffery

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

George Kapetanios

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

Vincent Labhard

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

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