Performance of adaptive estimators in slowly varying parameter models

This paper analyzes the MSE of the exponentially weighted least squares (EWLS) estimator in dynamic regression models with time-varying parameters. Under the assumption of differentiable parameter functions, it is derived an asymptotic expression which is the sum of a stationary and of an evolutionary component. The validity of the analytical expression is illustrated with simulation experiments, and its usefulness in designing the exponential discounting factor is illustrated on a real case-study. The practical finding is similar to the plug-in bandwidth selection in nonparametric smoothers.