Have you ever wondered how NASA tracks rockets? How your cars GPS system tracks your location? Or how financial analysts forecast stock prices? It turns out that each of these models are of dynamical systems and make use of a computer algorithm known as the Kalman filter.
In an attempt to teach how the filter works, I’ve put together this free note (which can be found in the Econometrics section of the website). The downloadable file also shows how you can implement the algorithm in practice by providing a simulation study with a simple unobserved components model for which corresponding MATLAB code is provided.