State-Dependent Model for the Analysis of Inflationary Rates

Abstract

In this study, an extension of the class of state-dependent model (SDM) for which optimal forecasts may be computed using a recursive examination procedure referred to as the Kalman filter is developed for the analysis of Inflationary rates in Nigeria. The SDM formulation yields a practical means of estimation for the complex time varying dynamical process and provided a generic flexible framework for inflationary rate modelling and inference. A straight forward implementation was achieved in the study by the use of R software package.

Key words:  Dynamical systems, Non-Linear time series models, State space model, Kalman filter,