Empirical Economics

, Volume 8, Issue 2, pp 71–85 | Cite as

Kalman filtering as an alternative to Ordinary Least Squares — Some theoretical considerations and empirical results

  • P. K. Watson


The purpose of this paper is to highlight the superiority of the Kalman filter over Ordinary Least Squares for estimating the unknown coefficients of the classical linear regression model. Both methods are analyzed with respect to their optimality properties and their usefulness in dealing with multicollinearity. Theoretical results are applied to two economic models.


Linear Regression Regression Model Theoretical Result Economic Theory Empirical Result 
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Copyright information

© Physica-Verlag 1983

Authors and Affiliations

  • P. K. Watson
    • 1
  1. 1.Faculty of Social Sciences, Department of EconomicsThe University of the West IndiesSt. Augustine, Trinidad & TobagoWest Indies

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