Impulse response function analysis for Markov switching var models

Maddalena Cavicchioli

Economics Letters, 2023, vol. 232, issue C

Abstract: We exactly derive the regime-dependent impulse response functions for a Markov switching vector autoregression (VAR) model in terms of neat matrix expressions in closed form. The key is to recognize that the latent first-order Markov switching process in the model has a VAR(1) representation, and that the model can be cast into a state-space form. Using such a representation, the regime-dependent impulse response function analysis can be processed with respect to either an asymmetric discrete shock or to a symmetric continuous shock. Our results extend and correct those obtained by Ehrmann et al. (2003) and coincide with those by Hamilton (1994) for the case of standard VAR models.

Keywords: Markov switching; Vector autoregression; Impulse response function; State-space representation (search for similar items in EconPapers)
JEL-codes: C32 C52 C53 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:232:y:2023:i:c:s0165176523003828

DOI: 10.1016/j.econlet.2023.111357

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