Instability in regime switching models

Chen Pu (), Hsiao Chih-Ying and Semmler Willi ()
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Chen Pu: Melbourne Institute of Technology, 154-158 Sussex Street, Sydney 2000, NSW, Australia
Hsiao Chih-Ying: Commonwealth Bank of Australia, Darling Park 201, Sussex Street, Sydney 2000, NSW, Australia
Semmler Willi: Department of Economics, New School for Social Research, 79 Fifth Ave, New York 10003, NY, USA

Studies in Nonlinear Dynamics & Econometrics, 2022, vol. 26, issue 5, 655-674

Abstract: In this paper, we look at the instability of a self-exciting regime-switching autoregressive model, specifically regime-switching models that are locally stable in each of their regimes. It turns out that the local stability of each regime is insufficient to ensure the overall stability of the model. The instability’s mechanism is described, and a sufficient condition for the instability is provided.

Keywords: instability; regime switching models; SETAR (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/snde-2020-0086

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