Is there a way to add covariates to the system equation in a time-varying
approach:
Y[t] = F'[t]theta[t] + v[t], v[t] ~ N[0,V] #observation equation
theta[t] = theta[t-1] + psi*Z[t] + w[t], w[t] ~ N[0,W] #system equation
While F[t] is a matrix of regressors to capture the short term effect on
the response series Y,
Z[t] measures the long-term effect of either
(1) two policies by a step dummy or
(2) various policies with a continuous variable.
I appreciate any kind of help!
Thanks in advance!
Jens