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Impulse response function analysis for Markov switching var models

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  • Cavicchioli, Maddalena

Abstract

We exactly derive the regime-dependent impulse response functions for a Markov switching vector autoregression (VAR) model in terms of neat matrix expressions in closed form. The key is to recognize that the latent first-order Markov switching process in the model has a VAR(1) representation, and that the model can be cast into a state-space form. Using such a representation, the regime-dependent impulse response function analysis can be processed with respect to either an asymmetric discrete shock or to a symmetric continuous shock. Our results extend and correct those obtained by Ehrmann et al. (2003) and coincide with those by Hamilton (1994) for the case of standard VAR models.

Suggested Citation

  • Cavicchioli, Maddalena, 2023. "Impulse response function analysis for Markov switching var models," Economics Letters, Elsevier, vol. 232(C).
    • Handle: RePEc:eee:ecolet:v:232:y:2023:i:c:s0165176523003828
    DOI: 10.1016/j.econlet.2023.111357
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    References listed on IDEAS

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    5. Cavicchioli, Maddalena, 2017. "Asymptotic Fisher information matrix of Markov switching VARMA models," Journal of Multivariate Analysis, Elsevier, vol. 157(C), pages 124-135.
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    1. Cavicchioli, Maddalena, 2024. "A matrix unified framework for deriving various impulse responses in Markov switching VAR: Evidence from oil and gas markets," The Journal of Economic Asymmetries, Elsevier, vol. 29(C).

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    More about this item

    Keywords

    Markov switching; Vector autoregression; Impulse response function; State-space representation;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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