A structural Time Series Model with Markov Switching

R.G. Shami and Catherine Forbes

No 10/00, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: We propose an innovations form of the structural model underlying exponential smoothing that is further augmented by a latent Markov switching process. A particular case of the new model is the local level model with a switching drift, where the switching component describes the change between high and low growth rate periods. This new model is used to analyse the US business cycle using US Quarterly real GNP data. Model parameters are estimated using a Gibbs sampling algorithm and subsequently used for forecasting purposes. In addition, the stability of the new model is tested against Hamilton's model over a range of observation periods.

Keywords: Structural models; Markov switching regime; Gibbs sampling Business cycle. (search for similar items in EconPapers)
JEL-codes: C11 C22 C53 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2000-12
New Economics Papers: this item is included in nep-ets
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Citations: View citations in EconPapers (2)

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