The Kalman filter: applications to forecasting and rational-expectations models

Abstract

Economics is not engineering; yet, perhaps, we can track the economy using the same tools used to track a spacecraft, an oil tanker, or a chemical reaction. In the 25 years since the publication of the original Kalman (1960) and Kalman and Bucy (1961) papers that introduced digital filters for nonstationary problems, economists have been studying these possibilities, and the presence of the August 1985 session of the World Congress of the Econometric Society suggests that it is still a question of great interest.