# bssm

## Description

`bssm`

creates a `bssm`

object, representing a Bayesian linear state-space model,
from a specified parameter-to-matrix mapping function, which defines the state-space model
structure, and the log prior distribution function of the parameters. The state-space model
can be time-invariant or time-varying (see Decide on Model Structure), and the state or observation
variables, *x _{t}* or

*y*, respectively, can be multivariate series.

_{t}In general, a `bssm`

object specifies the joint prior distribution and
characteristics of the state-space model only. That is, the model object is a template
intended for further use. Specifically, to incorporate data into the model for posterior
distribution analysis, pass the model object and data to the appropriate object function.

Alternative state-space models include:

## Creation

### Syntax

### Description

There are several ways to create a `bssm`

object representing a Bayesian
state-space model:

**Create Prior Model**— Directly create a`bssm`

object, representing a prior model, by using the`bssm`

function and specifying the parameter-to-matrix mapping function and log prior distribution function of the parameters. This method accommodates simple through complex state-space model structures. For more details, see the following syntax.**Convert Standard Model to Bayesian Prior Model**— Convert a specified standard, linear state-space model, an`ssm`

object, to a`bssm`

object by passing the model to the`ssm2bssm`

function. The converted Bayesian model has the same state-space structure as the standard model. Use this method for simple state-space models when you prefer to specify the coefficient matrices explicitly. You can optionally specify the log prior density of the parameters. For details, see`ssm2bssm`

and`ssm`

.**Estimate Posterior Model**— Pass a`bssm`

object representing a prior model, observed response data, and initial parameter values to the`estimate`

function to obtain a`bssm`

object representing a posterior model. For more details, see`estimate`

.

creates the Bayesian state-space model
object `PriorMdl`

= bssm(`ParamMap`

,`ParamDistribution`

)`PriorMdl`

, representing a prior model with Gaussian state
disturbances and observation innovations, using the parameter-to-matrix mapping function
`ParamMap`

, which you write, and the log prior distribution of the
parameters.

The `ParamMap`

function maps the collection of linear state-space
model parameters Θ to the time-invariant or time-varying coefficient matrices
*A*, *B*, *C*, and
*D*. In addition to the coefficient matrices,
`ParamMap`

can optionally map any of the following quantities:

Initial state means and covariances

`Mean0`

and`Cov0`

State types

`StateType`

Deflated observation data

`DeflatedData`

to accommodate a regression component in the observation equation

The `ParamDistribution`

function accepts Θ and returns the
corresponding log density.

`PriorMdl`

is a template that specifies the joint prior distribution
of Θ and the structure of the state-space model.

sets properties
representing the distributions of the state disturbances and observation innovations using
name-value arguments. For example,
`PriorMdl`

= bssm(`ParamMap`

,`ParamDistribution`

,`Name=Value`

)`bssm(ParamMap,ParamDistribution,ObservationDistribution=struct("Name","t","DoF",6))`

specifies *t* distribution with 6 degrees of freedom for all observation
innovation variables *u _{t}* in the Bayesian
state-space model.

### Input Arguments

`ParamMap`

— Parameter-to-matrix mapping function

function handle

Parameter-to-matrix mapping function that determines the data likelihood,
specified as a function handle in the form
`@`

, where
`fcnName`

is the function name.
`fcnName`

`ParamMap`

sets the `ParamMap`

property. Object
functions of `bssm`

compute the data likelihood by using the standard Kalman filter, where probabilities additionally condition on the
parameters.

Suppose

is the name of the
MATLAB`paramMap`

^{®} function specifying how the state-space model parameters Θ map to the
coefficient matrices and, optionally, other state-space model characteristics. Then,

must have this form.`paramMap`

function [A,B,C,D,Mean0,Cov0,StateType,DeflateY] =paramMap(theta,...otherInputs...) ... end

is a`theta`

`numParams`

-by-1 numeric vector of the linear state-space model parameters Θ as the first input argument. The function can accept other inputs in subsequent positions.`ParamMap`

returns the state-space model parameters in this table.Quantity Output Position Description *A*_{t}1 Required state-transition coefficient matrix

`A`

*B*_{t}2 Required state-disturbance-loading coefficient matrix

`B`

*C*_{t}3 Required measurement-sensitivity coefficient matrix

`C`

*D*_{t}4 Required observation-innovation coefficient matrix

`D`

*μ*_{0}5 Optional initial state mean vector

`Mean0`

Σ _{0}6 Optional initial state covariance matrix

`Cov0`

`StateType`

7 Optional state classification vector, either stationary (

`0`

), the constant 1 (`1`

), or diffuse, static, or nonstationary (`2`

)`DeflatedData`

8 Optional array of response data deflated by predictor data, which accommodates a regression component in the observation equation

The subscript

*t*indicates that the parameters can be time-varying (ignore the subscript for time-invariant parameters).To skip specifying an optional output argument, set the argument to

`[]`

in the function body. For example, to skip specifying`Mean0`

, set`Mean0 = [];`

in the function.For the default values of

`Mean0`

,`Cov0`

, and`StateType`

, see Algorithms.

Specify parameters to include in the posterior distribution by setting their value
to an entry in the first input argument

and set known entries of the
coefficients to their values. For example, the following lines define the 1-D
time-invariant state-space model `theta`

$$\begin{array}{l}{x}_{t}=a{x}_{t-1}+b{u}_{t}\\ {y}_{t}={x}_{t}+d{\epsilon}_{t}.\end{array}$$

A = theta(1); B = theta(2); C = 1; D = theta(3);

If

requires the input
parameter vector argument only, you can create the `paramMap`

`bssm`

object by
calling:

Mdl = bssm(@paramMap,...)

In general, create the `bssm`

object by calling:

Mdl = bssm(@(theta)paramMap(theta,...otherInputArgs...),...)

**Example: **`bssm(@(params)`

specifies the parameter-to-matrix mapping function
* paramFun*(theta,y,z),@ParamDistribution)

`paramFun`

that accepts the
state-space model parameters `theta`

, observed responses
`y`

, and predictor data `z`

.**Tip**

A best practice is to set `StateType`

of each state within
`ParamMap`

for both of the following reasons:

By default, the software generates

`StateType`

, but the default choice might not be accurate. For example, the software cannot distinguish between a constant 1 state and a static state.The software cannot infer

`StateType`

from data because the data theoretically comes from the observation equation. The realizations of the state equation are unobservable.

**Data Types: **`function_handle`

`ParamDistribution`

— Log of joint probability density function of the state-space model parameters *Π*(Θ)

function handle

Log of joint probability density function of the state-space model parameters
*Π*(Θ), specified as a function handle in the form
`@`

, where
`fcnName`

is the function name.
`fcnName`

`ParamDistribution`

sets the `ParamDistribution`

property.

Suppose

is the name of the
MATLAB function defining the joint prior distribution of Θ. Then,
`logPrior`

must have this form.`logPrior`

functionlogpdf=logPrior(theta,...otherInputs...) ... end

is a`theta`

`numParams`

-by-1 numeric vector of the linear state-space model parameters Θ. Elements of

must correspond to those of`theta`

`ParamMap`

. The function can accept other inputs in subsequent positions.

is a numeric scalar representing the log of the joint probability density of Θ at the input`logpdf`

.`theta`

If `ParamDistribution`

requires the input parameter vector
argument only, you can create the `bssm`

object by calling:

Mdl = bssm(...,@logPrior)

In general, create the `bssm`

object by calling:

Mdl = bssm(...,@(theta)logPrior(theta,...otherInputArgs...))

**Tip**

Because out-of-bounds prior density evaluation is 0, set the log prior density
of out-of-bounds parameter arguments to `-Inf`

.

**Data Types: **`function_handle`

## Properties

`ParamMap`

— Parameter-to-matrix mapping function

function handle

Parameter-to-matrix mapping function, stored as a function handle and set by the
`ParamMap`

input argument. `ParamMap`

completely
specifies the structure of the state-space model.

**Data Types: **`function_handle`

`ParamDistribution`

— Parameter distribution representation

function handle | numeric matrix

Parameter distribution representation, stored as a function handle or a
`numParams`

-by-`numDraws`

numeric matrix.

`ParamDistribution`

is a function handle for the log prior distribution of the parameters`ParamDistribution`

when you create`PriorMdl`

directly by using`bssm`

or when you convert a standard state-space model by using`ssm2bssm`

.`ParamDistribution`

is a`numParams`

-by-`numDraws`

numeric matrix containing random draws from the posterior distribution of the parameters when you estimate the posterior by using`estimate`

. Rows correspond to the elements of

and columns correspond to subsequent draws of the Markov chain Monte Carlo sampler, such as the Metropolis-Hastings sampler [1][2].`theta`

**Data Types: **`function_handle`

`StateDistribution`

— Distribution of state disturbance process

`"Gaussian"`

(default) | `"t"`

| character vector | structure array

*Since R2022b*

Distribution of the state disturbance process, specified as a distribution name or
structure array in this table. `bssm`

stores the value as a
structure array.

Distribution | Name | Variable Support | Structure Array | Hyperparameter Estimation Support |
---|---|---|---|---|

Standard Gaussian | `"Gaussian"` | Multivariate | `struct("Name","Gaussian")` | Not applicable |

Student’s t | `"t"` | Multivariate | `struct("Name","t","DoF",` | Yes |

The specified distribution applies to all state disturbance process variables.

For the Student's

*t*distribution:If you supply a structure array, you must specify both the

`"Name"`

and`"DoF"`

fields.You can change the hyperparameter value by using dot notation after you create the model. For example,

`Mdl.Distribution.DoF = 3`

.To facilitate posterior sampling,

`bssm`

represents multivariate Student's*t*-distributed variables as an inverse-gamma scale mixture. For more details, see Latent Variance Variables of t-Distributed Errors.

For more details on distribution hyperparameters, see Distribution Hyperparameters.

**Example: **`struct("Name","t","DoF",6)`

specifies a
*t* distribution with `6`

degrees of freedom for the
state disturbance process.

`ObservationDistribution`

— Distribution of observation innovation process

`"Gaussian"`

(default) | `"t"`

| `"mixture"`

| `"Laplace"`

| `"skewnormal"`

| character vector | structure array

*Since R2022b*

Distribution of the observation innovation process, specified as a distribution name
or structure array in this table. `bssm`

stores the value as a
structure array.

Distribution | Name | Variable Support | Structure Array | Hyperparameter Estimation Support |
---|---|---|---|---|

Standard Gaussian | `"Gaussian"` | Multivariate | `struct("Name","Gaussian")` | Not applicable |

Student’s t | `"t"` | Multivariate | `struct("Name","t","DoF",` | Yes |

Finite Gaussian mixture | `"mixture"` | Univariate | `struct("Name","mixture","Weight",` | No |

Laplace | `"Laplace"` | Univariate | `struct("Name","Laplace")` | Not applicable |

Skew normal | `"skewnormal"` | Univariate | `struct("Name","skewnormal","Delta",` | Yes |

The specified distribution applies to all observation innovation process variables. However, you can specify different Gaussian mixture regime means and variances among the variables.

For the Student's

*t*distribution:If you supply a structure array, you must specify both the

`"Name"`

and`"DoF"`

fields.You can change the hyperparameter value by using dot notation after you create the model. For example,

`Mdl.Distribution.DoF = 3`

.To facilitate posterior sampling,

`bssm`

represents multivariate Student's*t*-distributed variables as an inverse-gamma scale mixture. For more details, see Latent Variance Variables of t-Distributed Errors.

For the finite Gaussian mixture distribution,

`bssm`

sets the number of regimes (mixture components) to the number of elements of

. Therefore, to specify the nontrivial case, in which the distribution has more than one regime, you must specify at least`weight`

.`weight`

For more details on distribution hyperparameters, see Distribution Hyperparameters.

**Example: **`struct("Name","t","DoF",6)`

specifies a
*t* distribution with `6`

degrees of freedom for the
state disturbance process.

**Example: **`struct("Name","mixture","Mean",[-1 1],"Weight",[0.6 0.4])`

specifies a two-regime Gaussian mixture model for the univariate observation innovation
variable. The regime weights are `0.6`

and `0.4`

. The
regime mean vector is `[-1 1]`

. The default variance for all regimes is
`1`

.

## Object Functions

## Examples

### Create Time-Invariant Bayesian State-Space Model with Known and Unknown Parameters

Create a Bayesian state-space model containing two independent, stationary, autoregressive states. The observations are the deterministic sum of the two states (in other words, the model does not impose observation errors ${\epsilon}_{\mathit{t}}$). Symbolically, the system of equations is

$$\left[\begin{array}{c}{x}_{t,1}\\ {x}_{t,2}\end{array}\right]=\left[\begin{array}{cc}{\varphi}_{1}& 0\\ 0& {\varphi}_{2}\end{array}\right]\left[\begin{array}{c}{x}_{t-1,1}\\ {x}_{t-1,2}\end{array}\right]+\left[\begin{array}{cc}{\sigma}_{1}& 0\\ 0& {\sigma}_{2}\end{array}\right]\left[\begin{array}{c}{u}_{t,1}\\ {u}_{t,2}\end{array}\right]$$

$${y}_{t}=\left[\begin{array}{cc}1& 1\end{array}\right]\left[\begin{array}{c}{x}_{t,1}\\ {x}_{t,2}\end{array}\right].$$

Arbitrarily assume that the prior distribution of ${\varphi}_{1}$, ${\varphi}_{2}$, ${\sigma}_{1}^{2}$, and ${\sigma}_{2}^{2}$ are independent Gaussian random variables with mean 0.5 and variance 1.

The Local Functions section contains two functions required to specify the Bayesian state-space model. You can use the functions only within this script.

The `paramMap`

function accepts a vector of the unknown state-space model parameters and returns all of the following quantities:

`A`

= $\left[\begin{array}{cc}{\varphi}_{1}& 0\\ 0& {\varphi}_{2}\end{array}\right]$.`B`

= $\left[\begin{array}{cc}{\sigma}_{1}& 0\\ 0& {\sigma}_{2}\end{array}\right]$.`C`

= $\left[\begin{array}{cc}1& 1\end{array}\right]$.`D`

= 0.`Mean0`

and`Cov0`

are empty arrays`[]`

, which specify the defaults.`StateType`

= $\left[\begin{array}{cc}0& 0\end{array}\right]$, indicating that each state is stationary.

The `paramDistribution`

function accepts the same vector of unknown parameters as does `paramMap`

, but it returns the log prior density of the parameters at their current values. Specify that parameter values outside the parameter space have log prior density of `-Inf`

.

Create the Bayesian state-space model by passing function handles directly to `paramMap`

and `paramDistribution`

to `bssm`

.

Mdl = bssm(@paramMap,@priorDistribution)

Mdl = Mapping that defines a state-space model: @paramMap Log density of parameter prior distribution: @priorDistribution

`Mdl`

is a `bssm`

model specifying the state-space model structure and prior distribution of the state-space model parameters. Because `Mdl`

contains unknown values, it serves as a template for posterior estimation.

**Local Functions**

This example uses the following functions. `paramMap`

is the parameter-to-matrix mapping function and `priorDistribution`

is the log prior distribution of the parameters.

function [A,B,C,D,Mean0,Cov0,StateType] = paramMap(theta) A = [theta(1) 0; 0 theta(2)]; B = [theta(3) 0; 0 theta(4)]; C = [1 1]; D = 0; Mean0 = []; % MATLAB uses default initial state mean Cov0 = []; % MATLAB uses initial state covariances StateType = [0; 0]; % Two stationary states end function logprior = priorDistribution(theta) paramconstraints = [(abs(theta(1)) >= 1) (abs(theta(2)) >= 1) ... (theta(3) < 0) (theta(4) < 0)]; if(sum(paramconstraints)) logprior = -Inf; else mu0 = 0.5*ones(numel(theta),1); sigma0 = 1; p = normpdf(theta,mu0,sigma0); logprior = sum(log(p)); end end

### Create Time Varying Bayesian State-Space Model

Create a time-varying, Bayesian state-space model with these characteristics:

From periods 1 through 250, the state equation includes stationary AR(2) and MA(1) models, respectively, and the observation model is the weighted sum of the two states.

From periods 251 through 500, the state model includes only the first AR(2) model.

${\mu}_{0}=\left[\begin{array}{cccc}0.5& 0.5& 0& 0\end{array}\right]$ and ${\Sigma}_{0}$ is the identity matrix.

The prior density is flat.

Symbolically, the state-space model is

$\begin{array}{l}\begin{array}{c}\left[\begin{array}{c}{x}_{1t}\\ {x}_{2t}\\ {x}_{3t}\\ {x}_{4t}\end{array}\right]=\left[\begin{array}{cccc}{\varphi}_{1}& {\varphi}_{2}& 0& 0\\ 1& 0& 0& 0\\ 0& 0& 0& \theta \\ 0& 0& 0& 0\end{array}\right]\left[\begin{array}{c}{x}_{1,t-1}\\ {x}_{2,t-1}\\ {x}_{3,t-1}\\ {x}_{4,t-1}\end{array}\right]+\left[\begin{array}{cc}{\sigma}_{1}& 0\\ 0& 0\\ 0& 1\\ 0& 1\end{array}\right]\left[\begin{array}{c}{u}_{1t}\\ {u}_{2t}\end{array}\right]\\ {y}_{t}={c}_{1}\left({x}_{1t}+{x}_{3t}\right)+{\sigma}_{2}{\epsilon}_{t}.\end{array}\phantom{\rule{0.2777777777777778em}{0ex}}for\phantom{\rule{0.2777777777777778em}{0ex}}t=1,...,250,\\ \begin{array}{c}\left[\begin{array}{c}{x}_{1t}\\ {x}_{2t}\end{array}\right]=\left[\begin{array}{cccc}{\varphi}_{1}& {\varphi}_{2}& 0& 0\\ 1& 0& 0& 0\end{array}\right]\left[\begin{array}{c}{x}_{1,t-1}\\ {x}_{2,t-1}\\ {x}_{3,t-1}\\ {x}_{4,t-1}\end{array}\right]+\left[\begin{array}{c}{\sigma}_{1}\\ 0\end{array}\right]{u}_{1t}\\ {y}_{t}={c}_{2}{x}_{1t}+{\sigma}_{3}{\epsilon}_{t}.\end{array}\phantom{\rule{0.2777777777777778em}{0ex}}for\phantom{\rule{0.2777777777777778em}{0ex}}t=251,\\ \begin{array}{c}\left[\begin{array}{c}{x}_{1t}\\ {x}_{2t}\end{array}\right]=\left[\begin{array}{cc}{\varphi}_{1}& {\varphi}_{2}\\ 1& 0\end{array}\right]\left[\begin{array}{c}{x}_{1,t-1}\\ {x}_{2,t-1}\end{array}\right]+\left[\begin{array}{c}{\sigma}_{1}\\ 0\end{array}\right]{u}_{1t}\\ {y}_{t}={c}_{2}{x}_{1t}+{\sigma}_{3}{\epsilon}_{t}.\end{array}\phantom{\rule{0.2777777777777778em}{0ex}}for\phantom{\rule{0.2777777777777778em}{0ex}}t=252,...,500.\end{array}$

Write a function that specifies how the parameters `theta`

map to the state-space model matrices, the initial state moments, and the state types. Save this code as a file named `timeVariantParamMap.m`

on your MATLAB® path. Alternatively, open the example to access the function.

function [A,B,C,D,Mean0,Cov0,StateType] = timeVariantParamMapBayes(theta,T) % Time-variant, Bayesian state-space model parameter mapping function % example. This function maps the vector params to the state-space matrices % (A, B, C, and D), the initial state value and the initial state variance % (Mean0 and Cov0), and the type of state (StateType). From periods 1 % through T/2, the state model is a stationary AR(2) and an MA(1) model, % and the observation model is the weighted sum of the two states. From % periods T/2 + 1 through T, the state model is the AR(2) model only. The % log prior distribution enforces parameter constraints (see % flatPriorBSSM.m). T1 = floor(T/2); T2 = T - T1 - 1; A1 = {[theta(1) theta(2) 0 0; 1 0 0 0; 0 0 0 theta(4); 0 0 0 0]}; B1 = {[theta(3) 0; 0 0; 0 1; 0 1]}; C1 = {theta(5)*[1 0 1 0]}; D1 = {theta(6)}; Mean0 = [0.5 0.5 0 0]; Cov0 = eye(4); StateType = [0 0 0 0]; A2 = {[theta(1) theta(2) 0 0; 1 0 0 0]}; B2 = {[theta(3); 0]}; A3 = {[theta(1) theta(2); 1 0]}; B3 = {[theta(3); 0]}; C3 = {theta(7)*[1 0]}; D3 = {theta(8)}; A = [repmat(A1,T1,1); A2; repmat(A3,T2,1)]; B = [repmat(B1,T1,1); B2; repmat(B3,T2,1)]; C = [repmat(C1,T1,1); repmat(C3,T2+1,1)]; D = [repmat(D1,T1,1); repmat(D3,T2+1,1)]; end

Write a function that specifies a joint flat prior and parameter constraints. Save this code as a file named `flatPriorBSSM.m`

on your MATLAB path. Alternatively, open the example to access the function.

function logprior = flatPriorBSSM(theta) % flatPriorBSSM computes the log of the flat prior density for the eight % variables in theta (see timeVariantParamMapBayes.m). Log probabilities % for parameters outside the parameter space are -Inf. % theta(1) and theta(2) are lag 1 and lag 2 terms in a stationary AR(2) % model. The eigenvalues of the AR(1) representation need to be within % the unit circle. evalsAR2 = eig([theta(1) theta(2); 1 0]); evalsOutUC = sum(abs(evalsAR2) >= 1) > 0; % Standard deviations of disturbances and errors (theta(3), theta(6), % and theta(8)) need to be positive. nonnegsig1 = theta(3) <= 0; nonnegsig2 = theta(6) <= 0; nonnegsig3 = theta(8) <= 0; paramconstraints = [evalsOutUC nonnegsig1 ... nonnegsig2 nonnegsig3]; if sum(paramconstraints) > 0 logprior = -Inf; else logprior = 0; % Prior density is proportional to 1 for all values % in the parameter space. end end

Create a `bssm`

object representing the Bayesian state-space model object. Supply the parameter-to-matrix mapping function `timeVariantParamMapBayes`

as a function handle of solely `theta`

by setting the time series length to 500.

numObs = 500; Mdl = bssm(@(theta)timeVariantParamMapBayes(theta,numObs),@flatPriorBSSM)

Mdl = Mapping that defines a state-space model: @(theta)timeVariantParamMapBayes(theta,numObs) Log density of parameter prior distribution: @flatPriorBSSM

### Specify *t*-Distributed State Disturbances

This example shows how to specify that the state disturbances of a Bayesian state-space model are Student's *t *distributed in order to model excess kurtosis in the state equation. The example shows how to prepare the degrees of freedom parameter for posterior estimation and the example fully specifies the distribution.

Consider the Bayesian state-space model in Create Time-Invariant Bayesian State-Space Model with Known and Unknown Parameters, but assume that the state disturbances are distributed as a Student's $\mathit{t}$ random variable.

Create the model by passing function handles to the local functions that represent the state-space model structure and prior distribution of the model parameters $\Theta $. Specify that the distribution of the state disturbances is Student's $\mathit{t}$.

```
Mdl = bssm(@paramMap,@priorDistribution,StateDistribution="t");
Mdl.StateDistribution
```

`ans = `*struct with fields:*
Name: "t"
DoF: NaN

`Mdl`

is a `bssm`

model. The property `Mdl.StateDistribution`

is a structure array specifying the distribution of the state disturbances. The field `DoF`

is `NaN`

by default, which means that the $\mathit{t}$-distribution degrees of freedom ${\nu}_{\mathit{u}}$ is configured for estimation with all unknown state-space model parameters $\Theta $.

You can specify a fixed value for the degrees of freedom two ways:

By setting the DoF field to the positive scalar using dot notation

By recreating the

`bssm`

model and supplying a structure array specifying the distribution name and degrees of freedom

Specify that the degrees of freedom is 6 by using both methods.

Mdl.StateDistribution.DoF = 6

Mdl = Mapping that defines a state-space model: @paramMap Log density of parameter prior distribution: @priorDistribution Degree of freedom of t distribution in the state equation: 6

statedist = struct("Name","t","DoF",6); Mdl2 = bssm(@paramMap,@priorDistribution,StateDistribution=statedist)

Mdl2 = Mapping that defines a state-space model: @paramMap Log density of parameter prior distribution: @priorDistribution Degree of freedom of t distribution in the state equation: 6

`Mdl`

and `Mdl2`

are equal.

**Local Functions**

function [A,B,C,D,Mean0,Cov0,StateType] = paramMap(theta) A = [theta(1) 0; 0 theta(2)]; B = [theta(3) 0; 0 theta(4)]; C = [1 1]; D = 0; Mean0 = []; % MATLAB uses default initial state mean Cov0 = []; % MATLAB uses initial state covariances StateType = [0; 0]; % Two stationary states end function logprior = priorDistribution(theta) paramconstraints = [(abs(theta(1)) >= 1) (abs(theta(2)) >= 1) ... (theta(3) < 0) (theta(4) < 0)]; if(sum(paramconstraints)) logprior = -Inf; else mu0 = 0.5*ones(numel(theta),1); sigma0 = 1; p = normpdf(theta,mu0,sigma0); logprior = sum(log(p)); end end

### Specify Log Chi-Squared Distributed Observation Innovations

To model volatility clustering, you can specify $\mathrm{log}\text{\hspace{0.17em}}{\chi}_{1}^{2}$ distributed observation innovations by setting appropriate mixture weights, and regime means and variances of a 7-regime Gaussian mixture distribution.

Consider the Bayesian state-space model in Create Time-Invariant Bayesian State-Space Model with Known and Unknown Parameters, but assume that the observation-innovations process is distributed as a $\mathrm{log}\text{\hspace{0.17em}}{\chi}_{1}^{2}$ random variable.

Create a structure array with the following fields and values.

Field

`Name`

with value`"mixture"`

Field

`Weight`

with value`[`

0.0089 0.0541 0.1338 0.2761 0.2923 0.1494 0.0854]Field

`Mean`

with value`[-9.3202 -5.3145 -3.4147 -1.7097 -0.4531 0.3975 1.1925]`

Field

`Variance`

with value`[3.2793 2.4574 1.8874 1.3121 0.8843 0.5898 0.4995].^2`

weight = [0.0089 0.0541 0.1338 0.2761 0.2923 0.1494 0.0854]; mu = [-9.3202 -5.3145 -3.4147 -1.7097 -0.4531 0.3975 1.1925]; sigma2 = [3.2793 2.4574 1.8874 1.3121 0.8843 0.5898 0.4995].^2; ObsInnovDist = struct("Name","mixture","Weight",weight, ... "Mean",mu,"Variance",sigma2);

Create the model by passing function handles to the local functions that represent the state-space model structure and prior distribution of the model parameters $\Theta $. Use the structure array `ObsInnovDist`

to specify that the distribution of the observation innovations is finite Gaussian mixture with hyperparameters that define a $\mathrm{log}\text{\hspace{0.17em}}{\chi}_{1}^{2}$ distribution.

Mdl = bssm(@paramMap,@priorDistribution,ObservationDistribution=ObsInnovDist); Mdl.ObservationDistribution

`ans = `*struct with fields:*
Name: "mixture"
Weight: [0.0089 0.0541 0.1338 0.2761 0.2923 0.1494 0.0854]
Mean: [-9.3202 -5.3145 -3.4147 -1.7097 -0.4531 0.3975 1.1925]
Variance: [10.7538 6.0388 3.5623 1.7216 0.7820 0.3479 0.2495]

`Mdl`

is a `bssm`

model. The property `Mdl.ObservationDistribution`

is a structure array specifying the distribution of the observation-innovations process. All distribution hyperparameters are fully specified.

Plot the distribution of the observation innovations. Compare the Gaussian mixture representation of the $\mathrm{log}\text{\hspace{0.17em}}{\chi}_{1}^{2}$ and the true $\mathrm{log}\text{\hspace{0.17em}}{\chi}_{1}^{2}$ distributions.

r = numel(weight); LogChi2GMMdl = gmdistribution(mu',reshape(sigma2,1,1,r),weight); gmPDF = @(x)arrayfun(@(x0)pdf(LogChi2GMMdl,x0),x); logchi2PDF = @(x)((1/sqrt(2*pi))*exp((x-exp(x))/2)); figure fplot(gmPDF,[-10,5]) hold on fplot(logchi2PDF,"--r") title("Log Chi-Squared Distribution: Gaussian Mixture Versus True") legend("Gaussian Mixture","True",Location="best")

The distributions appear nearly identical.

**Local Functions**

function [A,B,C,D,Mean0,Cov0,StateType] = paramMap(theta) A = [theta(1) 0; 0 theta(2)]; B = [theta(3) 0; 0 theta(4)]; C = [1 1]; D = 0; Mean0 = []; % MATLAB uses default initial state mean Cov0 = []; % MATLAB uses initial state covariances StateType = [0; 0]; % Two stationary states end function logprior = priorDistribution(theta) paramconstraints = [(abs(theta(1)) >= 1) (abs(theta(2)) >= 1) ... (theta(3) < 0) (theta(4) < 0)]; if(sum(paramconstraints)) logprior = -Inf; else mu0 = 0.5*ones(numel(theta),1); sigma0 = 1; p = normpdf(theta,mu0,sigma0); logprior = sum(log(p)); end end

### Create Model Containing Regression Component to Deflate Observations

Consider a regression of the US unemployment rate onto and real gross national product (RGNP) rate, and suppose the resulting innovations are an ARMA(1,1) process. The state-space form of the relationship is

$$\begin{array}{l}\left[\begin{array}{c}{x}_{1,t}\\ {x}_{2,t}\end{array}\right]=\left[\begin{array}{cc}\varphi & \theta \\ 0& 0\end{array}\right]\left[\begin{array}{c}{x}_{1,t-1}\\ {x}_{2,t-1}\end{array}\right]+\left[\begin{array}{c}\sigma \\ 1\end{array}\right]{u}_{t}\\ {y}_{t}-\beta {Z}_{t}={x}_{1,t},\end{array}$$

where:

$${x}_{1,t}$$ is the ARMA process.

$${x}_{2,t}$$ is a dummy state for the MA(1) effect.

$${y}_{t}$$ is the observed unemployment rate deflated by a constant and the RGNP rate ($${Z}_{t}$$).

$${u}_{t}$$ is an iid Gaussian series with mean 0 and standard deviation 1.

Load the Nelson-Plosser data set, which contains a table `DataTable`

that has the unemployment rate and RGNP series, among other series.

`load Data_NelsonPlosser`

Create a variable in `DataTable`

that represents the returns of the raw RGNP series. Because price-to-returns conversion reduces the sample size by one, prepad the series with `NaN`

.

DataTable.RGNPRate = [NaN; price2ret(DataTable.GNPR)]; T = height(DataTable);

Create variables for the regression. Represent the unemployment rate as the observation series and the constant and RGNP rate series as the deflation data ${\mathit{Z}}_{\mathit{t}}$.

Z = [ones(T,1) DataTable.RGNPRate]; y = DataTable.UR;

Write a function that specifies how the parameters `theta`

map to the state-space model matrices, defers the initial state moments to the default, specifies the state types, and specifies the regression. Save this code as a file named `armaDeflateYBayes.m`

on your MATLAB® path. Alternatively, open this example to access the function.

function [A,B,C,D,Mean0,Cov0,StateType,DeflatedY] = armaDeflateYBayes(theta,y,Z) % Time-invariant, Bayesian state-space model parameter mapping function % example. This function maps the vector parameters to the state-space % matrices (A, B, C, and D), the default initial state value and the % default initial state variance (Mean0 and Cov0), the type of state % (StateType), and the deflated observations (DeflatedY). The log prior % distribution enforces parameter constraints (see flatPriorDeflateY.m). A = [theta(1) theta(2); 0 0]; B = [1; 1]; C = [theta(3) 0]; D = 0; Mean0 = []; Cov0 = []; StateType = [0 0]; DeflatedY = y - Z*[theta(4); theta(5)]; end

Write a function that specifies a joint flat prior and parameter constraints. Save this code as a file named `flatPriorDeflateY.m`

on your MATLAB path. Alternatively, open this example to access the function.

% Copyright 2022 The MathWorks, Inc. function logprior = flatPriorDeflateY(theta) % flatPriorDeflateY computes the log of the flat prior density for the five % variables in theta (see armaDeflateYBayes.m). Log probabilities % for parameters outside the parameter space are -Inf. % theta(1) and theta(2) are the AR and MA terms in a stationary % ARMA(1,1) model. The AR term must be within the unit circle. AROutUC = abs(theta(1)) >= 1; % The standard deviation of innovations (theta(3)) must be positive. nonnegsig1 = theta(3) <= 0; paramconstraints = [AROutUC nonnegsig1]; if sum(paramconstraints) > 0 logprior = -Inf; else logprior = 0; % Prior density is proportional to 1 for all values % in the parameter space. end end

Create a `bssm`

object representing the Bayesian state-space model. Specify the parameter-to-matrix mapping function as a handle to a function solely of the parameters `theta`

.

Mdl = bssm(@(theta)armaDeflateYBayes(theta,y,Z),@flatPriorDeflateY)

Mdl = Mapping that defines a state-space model: @(theta)armaDeflateYBayes(theta,y,Z) Log density of parameter prior distribution: @flatPriorDeflateY

## More About

### Bayesian Linear State-Space Model

A *Bayesian linear state-space model* is a
Bayesian view of a standard linear state-space
model, in which the vector of model parameters Θ are treated as random variables
with a joint prior distribution *Π*(Θ) and a posterior distribution
composed of the joint prior and data likelihood computed by the standard
Kalman filter
*Π*(Θ|*y _{t}*).

In general, a linear, multivariate, time-varying, Gaussian state-space model is the system of equations

$$\begin{array}{l}{x}_{t}={A}_{t}{x}_{t-1}+{B}_{t}{u}_{t}\\ {y}_{t}-{\left({Z}_{t}\beta \right)}^{\prime}={C}_{t}{x}_{t}+{D}_{t}{\epsilon}_{t},\end{array}$$

for *t* = 1, ..., *T* and where:

$${x}_{t}=\left[{x}_{1,t},\mathrm{...},{x}_{{m}_{t},t}\right]\prime $$ is an

*m*-dimensional state vector describing the dynamics of some, possibly unobservable, phenomenon at period_{t}*t*. The initial state distribution (*x*_{0}) has mean*μ*_{0}(`Mean0`

) and covariance matrix Σ_{0}(`Cov0`

).$${y}_{t}=\left[{y}_{1,t},\mathrm{...},{y}_{{n}_{t},t}\right]\prime $$ is an

*n*-dimensional observation vector describing how the states are measured by observers at period_{t}*t*.$${u}_{t}=\left[{u}_{1,t},\mathrm{...},{u}_{{k}_{t},t}\right]\prime $$ is a

*k*-dimensional white-noise vector of state disturbances at period_{t}*t*. All disturbances are either multivariate Gaussian distributed or multivariate Student's*t*distributed, with*ν*degrees of freedom._{u}$${\epsilon}_{t}=\left[{\epsilon}_{1,t},\mathrm{...},{\epsilon}_{{h}_{t},t}\right]\prime $$ is an

*h*-dimensional white-noise vector of observation innovations at period_{t}*t*. All innovations are either multivariate Gaussian or Student's*t*distributed, or univariate finite Gaussian mixture, Laplace, or skew normal distributed.*ε*and_{t}*u*are uncorrelated._{t}For time-invariant state-space models,

$${Z}_{t}=\left[\begin{array}{cccc}{z}_{t1}& {z}_{t2}& \cdots & {z}_{td}\end{array}\right]$$ is row

*t*of a*T*-by-*d*matrix of predictors*Z*. Each column of*Z*corresponds to a predictor, and each successive row to a successive period. If the observations are multivariate, then all predictors deflate each observation.*β*is a*d*-by-*n*matrix of regression coefficients for*Z*._{t}

*A*,_{t}*B*,_{t}*C*,_{t}*D*, and_{t}*β*(when present) are model parameters arbitrarily collected in the vector Θ. The joint prior distribution of Θ is*Π*(Θ) and the joint posterior distribution of Θ is*Π*(Θ|*y*,_{t}*Z*)._{t}

The following definitions describe each of the model parameters and state
characteristics, and how to configure them as outputs of
`ParamMap`

.

### State-Transition Coefficient Matrix *A*_{t}

_{t}

The *state-transition coefficient matrix*
*A _{t}* is a matrix or cell vector of matrices that
specifies how the states

*x*are expected to transition from period

_{t}*t*– 1 to

*t*, for all

*t*= 1,...,

*T*. In other words, the expected state-transition equation at period

*t*is

*E*(

*x*|

_{t}*x*

_{t–1}) =

*A*

_{t}*x*

_{t–1}.

For time-invariant state-space models, the output `A`

is an
*m*-by-*m* matrix, where *m* is the
number of state variables.

For time-varying state-space models, the output `A`

is a series of
matrices represented by a *T*-dimensional cell array, where
`A{t}`

contains an
*m _{t}*-by-

*m*

_{t – 1}state-transition coefficient matrix. If the number of state variables changes from period

*t*– 1 to

*t*,

*m*≠

_{t}*m*

_{t – 1}.

### State-Disturbance-Loading Coefficient Matrix *B*_{t}

_{t}

The *state-disturbance-loading coefficient matrix* *B _{t}* is a matrix or cell vector of matrices that specifies the additive error structure of the state disturbances

*u*in the state-transition equation from period

_{t}*t*– 1 to

*t*, for all

*t*= 1,...,

*T*. In other words, the state-transition equation at period

*t*is

*x*=

_{t}*A*

_{t}*x*

_{t–1}+

*B*

_{t}*u*.

_{t}For time-invariant state-space models, the output `B`

is an *m*-by-*k* matrix, where *m* is the number of state variables and *k* is the number of state disturbances. The quantity `B*(B')`

is the state-disturbance covariance matrix for all periods.

For time-varying state-space models, `B`

is a *T*-dimensional cell array, where `B{t}`

contains an *m _{t}*-by-

*k*state-disturbance-loading coefficient matrix. If the number of state variables or state disturbances changes at period

_{t}*t*, the matrix dimensions between

`B{t-1}`

and `B{t}`

vary. The quantity `B{t}*(B{t}')`

is the state-disturbance covariance matrix for period `t`

.### Measurement-Sensitivity Coefficient Matrix
*C*_{t}

_{t}

The *measurement-sensitivity coefficient matrix*
*C _{t}* is a matrix or cell vector of matrices that
specifies how the states

*x*are expected to linearly combine at period

_{t}*t*to form the observations,

*y*, for all

_{t}*t*= 1,...,

*T*. In other words, the expected observation equation at period

*t*is

*E*(

*y*|

_{t}*x*

_{t}) =

*C*

_{t}*x*

_{t}.

For time-invariant state-space models, the output `C`

is an
*n*-by-*m* matrix, where *n* is the
number of observation variables and *m* is the number of state
variables.

For time-varying state-space models, the output `C`

is a
*T*-dimensional cell array, where `C{t}`

contains an
*n _{t}*-by-

*m*measurement-sensitivity coefficient matrix. If the number of state or observation variables changes at period

_{t}*t*, the matrix dimensions between

`C{t-1}`

and `C{t}`

vary.### Observation-Innovation Coefficient Matrix *D*_{t}

_{t}

The *observation-innovation coefficient matrix* *D _{t}* is a matrix or cell vector of matrices that specifies the additive error structure of the observation innovations

*ε*in the observation equation at period

_{t}*t*, for all

*t*= 1,...,

*T*. In other words, the observation equation at period

*t*is

*y*=

_{t}*C*

_{t}*x*

_{t}+

*D*

_{t}*ε*.

_{t}For time-invariant state-space models, the output `D`

is an *n*-by-*h* matrix, where *n* is the number of observation variables and *h* is the number of observation innovations. The quantity `D*(D')`

is the observation-innovation covariance matrix for all periods.

For time-varying state-space models, the output `D`

is a *T*-dimensional cell array, where `D{t}`

contains an *n _{t}*-by-

*h*matrix. If the number of observation variables or observation innovations changes at period

_{t}*t*, then the matrix dimensions between

`D{t-1}`

and `D{t}`

vary. The quantity `D{t}*(D{t}')`

is the observation-innovation covariance matrix for period `t`

.### State Characteristics

Other state characteristics include initial state moments and a description of the dynamic behavior of each state.

You can optionally specify the state characteristics by including extra output arguments
for `ParamMap`

after the required coefficient matrices.

`Mean0`

— Initial state mean*μ*_{0}, an*m*-by-1 numeric vector, where*m*is the number of states in*x*_{1}.`Cov0`

— Initial state covariance matrix Σ_{0}, an*m*-by-*m*positive semidefinite matrix.`StateType`

— State dynamic behavior indicator, an*m*-by-1 numeric vector. This table summarizes the available types of initial state distributions.Value State Dynamic Behavior Indicator `0`

Stationary (for example, ARMA models) `1`

The constant 1 (that is, the state is 1 with probability 1) `2`

Diffuse, nonstationary (for example, random walk model, seasonal linear time series), or static state For example, suppose that the state equation has two state variables: The first state variable is an AR(1) process, and the second state variable is a random walk. Specify the initial distribution types by setting

`StateType=[0; 2];`

within the`ParamMap`

function.

### Static State

A *static state* does not change in value throughout the sample, that
is, $$P\left({x}_{t+1}={x}_{t}\right)=1$$ for all *t* = 1,...,*T*.

### Latent Variance Variables of *t*-Distributed Errors

To facilitate posterior sampling, multivariate Student's
*t*-distributed state disturbances and observation innovations are each
represented as an inverse-gamma scale mixture, where the inverse-gamma random variable is
the *latent variance variable*.

Explicitly, suppose the *m*-dimensional state disturbances
*u _{t}* are iid multivariate

*t*distributed with location 0, scale

*I*, and degrees of freedom

_{m}*ν*. As an inverse-gamma scale mixture

_{u}$${u}_{t}=\sqrt{{\zeta}_{t}}{\tilde{u}}_{t},$$

where:

The latent variable

*ζ*is inverse-gamma with shape and scale_{t}*ν*/2._{u}$${\tilde{u}}_{t}$$ is an

*m*-dimensional multivariate standard Gaussian random variable.

Multivariate *t*-distributed observation innovations can be similarly
decomposed.

You can access *ζ _{t}* by writing a custom output
function that returns the field for the specified error type, either

`StateVariance`

or `ObservationVariance`

. For more
details, see the `OutputFunction`

name-value argument and
`Output`

output argument.## Tips

Load the data to the MATLAB workspace before creating the model.

Create the parameter-to-matrix mapping function and log prior distribution function each as their own file.

To specify a log

*χ*^{2}_{1}distribution for the observation innovation process*ε*, set the_{t}`ObservationDistribution`

to the structure array`struct("Weight",`

, where:,"Mean",`weight`

,"Variance",`mu`

)`sigma2`

is`weight`

`[0.0089 0.0541 0.1338 0.2761 0.2923 0.1494 0.0854]`

.

is`mu`

`[-9.3202 -5.3145 -3.4147 -1.7097 -0.4531 0.3975 1.1925]`

.

is`sigma2`

`[3.2793 2.4574 1.8874 1.3121 0.8843 0.5898 0.4995].^2`

.

## Algorithms

### Distribution Hyperparameters

This table describes the supported distribution hyperparameters, and their values and defaults.

Distribution | Error Support | Hyperparameter | Field Name | Value | Default |
---|---|---|---|---|---|

Student's t | Multivariate u (state) and
_{t}ε (observation)_{t} | Degrees of freedom parameter | `"DoF"` | Positive numeric scalar, `NaN` , or a function handle. You
must specify the value. | When you specify a structure array, you must specify
`"DoF"` . Otherwise, the default is
`NaN` . |

Finite Gaussian mixture | Univariate ε_{t} | Weights (probability distribution) for r regimes | `"Weight"` | Length
| `1` |

Means for r regimes | `"Mean"` | Length | `zeros(1,` | ||

Variances for r regimes | `"Variance"` | Length | `ones(1,` | ||

Skew normal | Univariate ε_{t} | Distribution scale is $$\sqrt{{\delta}^{2}+1}$$ and shape is δ | `"Delta"` | Numeric scalar or `NaN` | `NaN` |

`bssm`

fixes hyperparameters to specified numeric values.For a

`NaN`

or a function handle, where the values are supported,`bssm`

treats the hyperparameter as unknown. Consequently,`bssm`

object functions estimate them by computing their posterior distribution with all other unknown parameters in Θ. The value of the hyperparameter determines its prior distribution.For

`NaN`

, the prior is flat.For a function handle (supported for

`"DoF"`

), the associated function represents the log prior distribution. The function has the form, where

is a numeric scalar.`x`

For example, a valid function handle isfunction

*logpdf*=*logPrior*(*x*,...otherInputs...) ... end`@(x)log(normpdf(x,7,1))`

.

### State-Space Model Behaviors

For each state variable

, default values of`j`

`Mean0`

and`Cov0`

depend on`StateType(`

:)`j`

If

`StateType(`

(stationary state),) = 0`j`

`bssm`

generates the initial value using the stationary distribution. If you provide all values in the coefficient matrices (that is, your model has no unknown parameters),`bssm`

generates the initial values. Otherwise, the software generates the initial values during estimation.If

`StateType(`

(constant state),) = 1`j`

`Mean0(`

is)`j`

`1`

and`Cov0(`

is)`j`

`0`

.If

`StateType(`

(nonstationary or diffuse state),) = 2`j`

`Mean0(`

is 0 and)`j`

`Cov0(`

is)`j`

`1e7`

.

For static states that do not equal 1 throughout the sample, the software cannot assign a value to the degenerate, initial state distribution. Therefore, set the

`StateType`

of static states to`2`

. Consequently, the software treats static states as nonstationary and assigns the static state a diffuse initial distribution.`bssm`

models do not store observed responses or predictor data. Supply the data wherever necessary using the appropriate input or name-value pair arguments.`DeflateY`

is the deflated-observation data, which accommodates a regression component in the observation equation. For example, in this function, which has a linear regression component,`Y`

is the vector of observed responses and`Z`

is the vector of predictor data.function [A,B,C,D,Mean0,Cov0,StateType,DeflateY] =

*ParamFun*(theta,Y,Z) ... DeflateY = Y - params(9) - params(10)*Z; ... end

## References

[1] Hastings, Wilfred K. "Monte
Carlo Sampling Methods Using Markov Chains and Their Applications."
*Biometrika* 57 (April 1970): 97–109. https://doi.org/10.1093/biomet/57.1.97.

[2] Metropolis, Nicholas, Rosenbluth, Arianna. W., Rosenbluth, Marshall. N., Teller, Augusta. H., and Teller, Edward. "Equation of State Calculations by Fast Computing Machines." *The Journal of Chemical Physics* 21 (June 1953): 1087–92. https://doi.org/10.1063/1.1699114.

## Version History

**Introduced in R2022a**

### R2022b: Assume non-Gaussian, fat-tailed distributions on the state disturbance and observation innovation processes

`bssm`

enables you to assume the Student's *t* distribution for the conditional distribution of the state disturbance or
observation innovations process. These error settings are suited when the process or
measurement errors have excess kurtosis (or is fat-tailed or leptokuric).

Specify the distribution of either error process by using the following name-value
argument when you create a `bssm`

object:

`StateDistribution`

— Distribution of the state disturbance process`ObservationDistribution`

— Distribution of the observation innovation process

## See Also

### Objects

### Functions

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