Incorporating vintage differences and forecasts into Markov switching models

Jeremy J. Nalewaik

No 2007-23, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper discusses extensions of standard Markov switching models that allow estimated probabilities to reflect parameter breaks at or close to the end of the sample, too close for standard maximum likelihood techniques to produce precise parameter estimates. The basic technique is a supplementary estimation procedure, bringing additional information to bear to estimate the statistical properties of the end-of-sample observations that behave differently from the rest. Empirical results using real-time data show that these techniques improve the ability of a Markov switching model based on GDP and GDI to recognize the start of the 2001 recession.

Keywords: Econometric; models (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-ecm and nep-for
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2007-23

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