A hidden Markov regime-switching smooth transition model

Elliott Robert J., Tak Kuen Siu and Lau John W.
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Elliott Robert J.: School of Commerce, University of South Australia, Australia; Haskayne School of Business, University of Calgary, Calgary, Alberta, Canada
Lau John W.: Department of Mathematics and Statistics, University of Western Australia, Perth, Australia

Studies in Nonlinear Dynamics & Econometrics, 2018, vol. 22, issue 4, 21

Abstract: In this paper, we develop a new class of parametric nonlinear time series models by combining two important classes of models, namely smooth transition models and hidden Markov regime-switching models. The class of models is general and flexible enough to incorporate two types of switching behavior: smooth state transitions and abrupt changes in hidden states. The estimation of the hidden states and model parameters is performed by applying filtering theory and a filter-based expectation-maximization (EM) algorithm. Applications of the model are illustrated using simulated data and real financial data. Other potential applications are mentioned.

Keywords: filtering; Laplace series expansion; nonlinear time series; regime switching model; smooth transition model (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1515/snde-2016-0061

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