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Working Paper 1985-001A

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"Comparing Multi-State Kalman Filter and ARIMA Forecasts: An Application to the Money Multiplier"
by R. W. Hafer, Scott E. Hein, and Clemens J.M. Kool

This paper derives one-month ahead forecasts of the money (M I) multiplier using the Multi-State Kalman Filter and Box-Jenkins ARIMA methods. A comparison of the forecasts far the period 1980-82 reveals that the Multi-State Kalman Filter procedure was generally superior to the ARIMA procedure In terms of most summary statistics. The superiority is traced to the turbulent period of 1980-81. This paper also compares aggregate and component forecasts of the multiplier. The aggregate Multi-State Kalman Filter was the most accurate in predicting the one-month ahead money multiplier.

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Category > Monetary Policy/Macroeconomics