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A structural Time Series Model with Markov Switching

Author

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  • Shami, R.G.
  • Forbes, C.S.

Abstract

We propose an innovations form of the structural model underlying exponential smoothing that is further augmented by a latent Markov switching process. A particular case of the new model is the local level model with a switching drift, where the switching component describes the change between high and low growth rate periods. This new model is used to analyse the US business cycle using US Quarterly real GNP data. Model parameters are estimated using a Gibbs sampling algorithm and subsequently used for forecasting purposes. In addition, the stability of the new model is tested against Hamilton's model over a range of observation periods.

Suggested Citation

  • Shami, R.G. & Forbes, C.S., 2000. "A structural Time Series Model with Markov Switching," Monash Econometrics and Business Statistics Working Papers 10/00, Monash University, Department of Econometrics and Business Statistics.
    • Handle: RePEc:msh:ebswps:2000-10
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    File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2000/wp10-00.pdf
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    References listed on IDEAS

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    Cited by:

    1. Chin Nam Low & Heather Anderson & Ralph D. Snyder, 2006. "Beveridge-Nelson Decomposition with Markov Switching," Monash Econometrics and Business Statistics Working Papers 17/06, Monash University, Department of Econometrics and Business Statistics.

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    More about this item

    Keywords

    Structural models; Markov switching regime; Gibbs sampling Business cycle.;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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