Excess shocks in filtering

General DSGE Modeling
1

Hello,

I have a question regarding Dynare’s kalman filter. Is it possible to filter shocks in a model with more shocks than observables. And if it is possible, then how does dynare handle this? Does it use some kind of an optimization-smoother? If understand correctly, it is not possible to identify all shocks in a situation like this (Excess shocks can limit the economic interpretation - ScienceDirect), so what kind of procedure does dynare use?

thanks in advance

2

I am not sure I understand the question. The Kalman filter and smoother have unique recursion to compute the filtered and smoothed shocks. The problem is that the original/true structural shocks will typically not cleanly map into recovered smoother and filtered shocks (as described in the paper you referenced).

3

Sorry, I guess I was confused on the Kalman smoother. Thank you for your answer