I have a question about the estimated smoothed shocks.
As far as I know, the smoothed shocks are the best guess based on all observations.
The problem is that I’ve gotten a large scale (around 1e+04) of smoothed shocks over the initial 20 quarters.
Although it converges to zero after the initial 20 quarters, I was wondering what causes the initial spikes of the smoothed shocks.
I always appreciate your help.
Thanks
Most probably a mistake in your observation equations where you need big shocks to bring a mean 0 variable to the level of the data.
Many thanks.
I got some intuitions from your comments.
Are there any possibilities of absurd initial values of state variables (x_{0|0} and P_{0|0}) or wrong calibrated parameters?
The initial values for the Kalman filter are the steady state and the unconditional variance. If your observation equation is wrong, that starting value will of course be off.