ON THE DETERMINATION OF THE NUMBER OF REGIMES IN MARKOV-SWITCHING AUTOREGRESSIVE MODELS
. Dynamic models with parameters that are allowed to depend on the state of a hidden Markov chain have become a popular tool for modelling time series subject to changes in regime. An important question that arises in applications involving such models is how to determine the number of states requir...
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Published in | Journal of time series analysis Vol. 24; no. 2; pp. 237 - 252 |
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Main Authors | , |
Format | Journal Article |
Language | English |
Published |
Oxford, UK
Blackwell Publishers
01.03.2003
Wiley Blackwell |
Series | Journal of Time Series Analysis |
Subjects | |
Online Access | Get full text |
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Summary: | . Dynamic models with parameters that are allowed to depend on the state of a hidden Markov chain have become a popular tool for modelling time series subject to changes in regime. An important question that arises in applications involving such models is how to determine the number of states required for the model to be an adequate characterization of the observed data. In this paper, we investigate the properties of alternative procedures that can be used to determine the state dimension of a Markov‐switching autoregressive model. These include procedures that exploit the ARMA representation which Markov‐switching processes admit, as well as procedures that are based on optimization of complexity‐penalized likelihood measures. Our Monte Carlo analysis reveals that such procedures estimate the state dimension correctly, provided that the parameter changes are not too small and the hidden Markov chain is fairly persistent. The use of the various methods is also illustrated by means of empirical examples. |
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Bibliography: | ark:/67375/WNG-RCV1P9NB-N istex:AAF96C58FB83F32A116946DD8EE2EDB3FB297F6B ArticleID:JTSA305 ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0143-9782 1467-9892 |
DOI: | 10.1111/1467-9892.00305 |