Spectral representation and autocovariance structure of Markov switching DSGE models

Maddalena Cavicchioli

Communications in Statistics - Theory and Methods, 2020, vol. 49, issue 7, 1635-1652

Abstract: We investigate the L2-structure of Markov switching Dynamic Stochastic General Equilibrium (MS DSGE) models and derive conditions for strict and second-order stationarity. Then we determine the autocovariance function of the process driven by a stationary MS DSGE model and give a stable VARMA representation of it. It turns out that the autocovariance structure of the process coincides with that of a standard VARMA. Finally, we propose a method to derive the spectral density in a matrix closed-form of MS DSGE models. Our results relate with the works of Francq and Zakoian, Krolzig, Zhang and Stine. Numerical and empirical illustrations complete the article.

Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:taf:lstaxx:v:49:y:2020:i:7:p:1635-1652

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DOI: 10.1080/03610926.2018.1563184

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