Maximum Likelihood Estimation in Markov Regime‐Switching Models With Covariate‐Dependent Transition Probabilities

Demian Pouzo, Zacharias Psaradakis and Martin Sola

Econometrica, 2022, vol. 90, issue 4, 1681-1710

Abstract: This paper considers maximum likelihood (ML) estimation in a large class of models with hidden Markov regimes. We investigate consistency of the ML estimator and local asymptotic normality for the models under general conditions, which allow for autoregressive dynamics in the observable process, Markov regime sequences with covariate‐dependent transition matrices, and possible model misspecification. A Monte Carlo study examines the finite‐sample properties of the ML estimator in correctly specified and misspecified models. An empirical application is also discussed.

Date: 2022
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Citations: View citations in EconPapers (6)

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https://doi.org/10.3982/ECTA17249

Related works:
Working Paper: Maximum Likelihood Estimation in Markov Regime-Switching Models with Covariate-Dependent Transition Probabilities (2021)
Working Paper: Maximum Likelihood Estimation in Markov Regime-Switching Models with Covariate-Dependent Transition Probabilities (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:emetrp:v:90:y:2022:i:4:p:1681-1710

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