On applications of state-space modelling in macroeconomics

This paper reviews the literature on applications of state- space modelling to macroeconomic questions, with four examples related to modelling unobserved trends, transition across different steady states, expectations formation and forecasting/data revision issues. Due to the flexibility of the state-space approach, it is both a useful tool for research purposes and highly useful in addressing practical issues. In many cases, state-space modelling offers the possibility of building encompassing models, and formulating rather complicated problems in a simple manner.