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Change in Regime and Markov Models

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Abstract

In this paper we point out that using a two-state Markov chain to describe change in regime makes it difficult to interpret the model since there is a bias towards frequent shifts. However, by using a finite Markov chain with a transition matrix satisfying certain restrictions it is possible to circumvent the difficulty and at the same time use the established procedures for estimation and filtering. The methods are applied to a couple of time series from the Norwegian quarterly national accounts.

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  • Anders Rygh Swensen, 1997. "Change in Regime and Markov Models," Discussion Papers 204, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:204
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp204.pdf
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    More about this item

    Keywords

    Change in regime; Markov-switching models; alternating renewal processes;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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