Asymptotic properties of the maximum likelihood estimator in regime-switching models with time-varying transition probabilities

Chaojun Li and Yan Liu

The Econometrics Journal, 2023, vol. 26, issue 1, 67-87

Abstract: SummaryTime-varying transition probability (TVTP) regime-switching models extend the constant regime transition probability in Markov-switching models to include information from observations. We show consistency and asymptotic normality of the maximum likelihood estimator (MLE) in general TVTP regime-switching models where the conditional distribution ofdepends on lagged regimes. Consistency of the MLE is also shown under misspecification. The assumptions are verified in regime-switching autoregressive models with widely applied TVTP specifications. A simulation study examines the finite-sample distributions of the MLE and compares the asymptotic variance estimates constructed from the Hessian matrix and the outer product of the score. The simulation results favour the latter. As an empirical example, we compare three leading economic indicators in terms of describing U.S. industrial production.

Keywords: Regime-switching model; time-varying transition probability; asymptotic property; maximum likelihood estimator (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/ectj/utac022 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:emjrnl:v:26:y:2023:i:1:p:67-87.

Access Statistics for this article

The Econometrics Journal is currently edited by Jaap Abbring

More articles in The Econometrics Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().