Discrete-response state space models with conditional heteroscedasticity: An application to forecasting the federal funds rate target

摘要

We propose a state space mixed model with stochastic volatility for ordinal-response time series data. For parameter estimation, we design an efficient Markov chain Monte Carlo algorithm. We illustrate our method with an empirical study on the federal funds rate target. The proposed model provides better forecasts than alternative specifications. (C) 2017 Elsevier B.V. All rights reserved.