Modeling macroeconomic series with regime-switching models characterized by a high-dimensional state space
Maciej Augustyniak and
Economics Letters, 2018, vol. 170, issue C, 122-126
The Markov-switching multifractal process, and recent extensions such as the factorial hidden Markov volatility model, correspond to tightly parametrized hidden Markov models characterized by a high-dimensional state space. Because the central component in these models is a Markov chain restricted to have positive support, the applicability of such models has been so far limited to the modeling of positive processes such as volatilities, inter-trade durations and trading volumes. By adapting the factorial hidden Markov volatility model, we develop a new regime-switching process for capturing time variation in the conditional mean of a time series with support on the whole real line. We show its promising performance to fit 21 widely used macroeconomic data sets.
Keywords: Conditional mean model; Markov-switching; Factorial hidden Markov model; Multifractal (search for similar items in EconPapers)
JEL-codes: C22 C51 C58 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:170:y:2018:i:c:p:122-126
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