Modelling Regime Switching and Structural Breaks with an Infinite Dimension Markov Switching Model
Modelling Regime Switching and Structural Breaks with an Infinite Dimension Markov Switching Model
复制标题
使用无限维马尔可夫切换模型对机制切换和结构断裂进行建模
DOI:
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发表时间:
2011
期刊:
影响因子:
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通讯作者:
Yong Song
中科院分区:
文献类型:
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作者:
Yong Song
This paper proposes an infinite dimension Markov switching model to accommodate regime switching and structural break dynamics or a combination of both in a Bayesian framework. Two parallel hierarchical structures, one governing the transition probabilities and another governing the parameters of the conditional data density, keep the model parsimonious and improve forecasts. This nonparametric approach allows for regime persistence and estimates the number of states automatically. A global identification algorithm for structural changes versus regime switching is presented. Applications to U.S. real interest rates and inflation compare the new model to existing parametric alternatives. Besides identifying episodes of regime switching and structural breaks, the hierarchical distribution governing the parameters of the conditional data density provides significant gains to forecasting precision.