Employing Extended Kalman Filter in a Simple Macroeconomic Model

Abstract

In this study, the estimation povver of Extended Kalman Filter is tested within a simple Keynesian macroeconomic model. After the model is written in a non-linear state space form, Extended Kalman Filter emerges as the appropnate methodology to estimate both state variables and the parameters. The simulation results suggest that such a methodology can also be employed in explaining more complex macroeconomic dynamics.