Abstract
I have argued above that in a changing environment, the assumption of constant coefficients is unrealistic. However, nothing is impossible: certain relationships may just happen to be characterized by a stable regression equation. Therefore one must examine the data at hand before one accepting or rejecting stable coefficients as a working hypothesis. In what follows here I will subject the data to a rather a theoretical test for stability. The method used is similar in spirit to that which I will present in a later chapter dealing with maximum likelihood estimation. While the mathematics may be similar, the reasoning behind the calculations is not.
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© 1996 Springer Science+Business Media Dordrecht
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Wells, C. (1996). Flexible Least Squares. In: The Kalman Filter in Finance. Advanced Studies in Theoretical and Applied Econometrics, vol 32. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-8611-5_3
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DOI: https://doi.org/10.1007/978-94-015-8611-5_3
Publisher Name: Springer, Dordrecht
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