Abstract
Interdependent econometric models specified for the control of economic processes are often subject to structural changes, and characterized by stochastic and time-varying structural parameters. A two-stage procedure based on Kalman filtering is suggested for recursive estimation in structural forms. The first stage gives recursive estimates of the reduced form parameters, and the second stage deals with recursive structural form estimation. The estimation procedure does well as long as the a priori knowledge necessary for the Kalman filtering is true. As soon as some of this information is mis-specified, the properties are aggravating. These robustness problems are illustrated in the case of mis-specified transition matrices.
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