Kalaba, Robert E.; Tesfatsion, Leigh

Journal of Economic Dynamics and Control Vol. 12 no. 1 (March 1988): 43-48.

This study proposes a Flexible Least Squares (FLS) method for state estimation when the dynamic equations are unknown but the process state evolves only slowly over time. A smoothness prior is introduced in place of an explicit specification for the unknown dynamic equations governing the evolution of the process state. Simulation experiments illustrating the method are presented. Annotated pointers to related work can be accessed here: http://www.econ.iastate.edu/tesfatsi/flshome.htm

JEL Classification: C1, C3, C5

Keywords: Flexible least squares, smoothness prior