Re: st: Qustion about a state space model

[Masafumi Yabara <m.yabara@gmail.com>]

Dear Jorge,

Thank you so much for your response.
Now everything is clear to me.

All the best,

Masafumi Yabara


2011/3/3 Jorge Eduardo Pérez Pérez <perez.jorge@ur.edu.co>:
> Your model is a time-varying parameters regression model. Stata is
> unable to estimate this model. -sspace- only estimates "linear
> state-space models with time-invariant coefficient matrices"
> _______________________
> Jorge Eduardo Pérez Pérez
>
>
> On Wed, Mar 2, 2011 at 6:13 PM, Masafumi Yabara <m.yabara@gmail.com> wrote:
>>
>> Dear Stata members,
>>
>> I'm trying to run a state space model as below to see the trend of
>> stock market integration, following the literature on the subject
>> (e.g., I.-W. Yu et al./Journal of Banking & Finance 34 (2010) 2874-2885).
>>
>> Signal equation: ln Rt - ln St = At + Bt (ln Rt - ln Gt) + error1(t)
>> State equation 1: At = A(t-1) + error2(t)
>> State equation 2: Bt = B(t-1) + error3(t)
>>
>> where Rt: equity market index level of a dominant regional market (in
>> my case, Kenya) at time t
>> St: equity market index level of a country of interest (in my case,
>> Tanzania) at time t
>> Gt: equity market index level of a dominant external market (in my
>> case, US) at time t.
>>
>> My question is, how I can construct the model in STATA, because my
>> model did not run.
>>
>> Here are what I did.
>> I typed the following commands in STATA.
>> The variables "nsetse" and "nseiundu" correspond to "ln Rt - ln St" and
>> "ln Rt - ln Gt" in the signail equation above, respectively.
>>
>> . constraint 1 [u1]L.u1 = 1
>> . constraint 2 [u1]e.u1 = 1
>> . constraint 3 [u2]L.u2 = 1
>> . constraint 4 [u2]e.u2 = 1
>> . constraint 5 [nsetse]u1 = 1
>> . constraint 6 [nsetse]u2 = nseindu
>> . constraint 7 [nsetse]e.nsetse = 1
>> .
>> . sspace (u1 L.u1 e.u1, state noconstant) ///
>> >           (u2 L.u2 e.u2, state noconstant) ///
>> >           (nsetse u1 u2 e.nsetse, noconstant), constraints(1/7)
>>
>> Then I got the following error messages, and could not solve it
>> although I modified the scales of the variables and tried different
>> techniques (options) and a number of different settings.
>>
>> (note: constraint number 6 caused error r(111))
>> searching for initial values .
>> (setting technique to bhhh)
>> Iteration 0:   log likelihood = -284.60372
>> ......
>> (switching technique to nr)
>> Iteration 5:   log likelihood = -282.73863  (backed up)
>> optimization terminated because of numerical instability:
>> Hessian is not negative semidefinite r(430);
>>
>> The tricky part of the model is, to me, that an unobserved state (Bt) is
>> multiplied by an independent variable (ln Rt - ln Gt) in the signal equation.
>> As a matter of fact, the result says the constraint No.6 is causing errors.
>> I guess my way of constructing the model is wrong, but I can't figure out
>> how I can resolve the problem.
>> Any advise and suggestion are very much appreciated.
>>
>> Thank you so much in advance for your help.
>>
>> Best regards,
>>
>> Masafumi Yabara
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