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Multivariate Markov switching with weighted regime determination: giving France more weight than Finland

Michael Dueker and Martin Sola

No 2008-001, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This article deals with using panel data to infer regime changes that are common to all of the cross section. The methods presented here apply to Markov switching vector autoregressions, dynamic factor models with Markov switching and other multivariate Markov switching models. The key feature we seek to add to these models is to permit cross-sectional units to have different weights in the calculation of regime probabilities. We apply our approach to estimating a business cycle chronology for the 50 U.S. States and the Euro area, and we compare results between country-specific weights and the usual case of equal weights. The model with weighted regime determination suggests that Europe experienced a recession in 2002-03, whereas the usual model with equal weights does not.

Keywords: Business cycles; France; Finland (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-ecm and nep-mac
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Citations: View citations in EconPapers (3)

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