Block Kalman ltering for large-scale DSGE models

In this paper block Kalman …lters for Dynamic Stochastic General Equilibrium models are presented and evaluated. Our approach is based on the simple idea of writing down the Kalman …lter recursions on block form and appropriately sequencing the operations of the prediction step of the algorithm. It is argued that block …ltering is the only viable serial algorithmic approach to signi…cantly reduce Kalman …ltering time in the context of large DSGE models. For the largest model we evaluate the block …lter reduces the computation time by roughly a factor 2. Block …ltering compares favourably with the more general method for faster Kalman …ltering outlined by Koopman and Durbin (2000) and, furthermore, the two approaches are largely complementary. We would like to thank Mattias Villani, Steve Lionel and Duncan Po. The views expressed in this paper are solely the responsibility of the authors and should not be interpreted as re‡ecting the views of the Executive Board of Sveriges Riksbank. yDept. of Economic Statistics and Decision Support, Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden. [email protected]. zResearch Department, Sveriges Riksbank, SE-103 37 Stockholm, Sweden. [email protected].