Markov-Switching Models with State-Dependent Time-Varying Transition Probabilities

Martin Sola and Zacharias Psaradakis

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: This paper proposes a model which allows for discrete stochastic breaks in the time varying transition probabilities of Markov-switching models with autoregressive dynamics. An extensive simulation study is undertaken to examine the properties of the maximum-likelihood estimator and related statistics, and to investigate the implications of misspecification due to unaccounted changes in the parameters of the Markov transition mechanism. An empirical application that examines the relationship between Argentinian sovereign bond spreads and output growth is also discussed.

Keywords: Markov-switching models; Maximum likelihood; Monte Carlo experiments; Time-varying transition probabilities (search for similar items in EconPapers)
JEL-codes: C32 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2017-07
New Economics Papers: this item is included in nep-ore
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https://www.utdt.edu/download.php?fname=_150309088771737100.pdf (application/pdf)

Related works:
Journal Article: Markov-Switching Models with State-Dependent Time-Varying Transition Probabilities (2024)
Working Paper: Markov-Switching Models with State-Dependent Time-Varying Transition Probabilities (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:2017_01

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