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Modeling Copper Price: A Regime-Switching Approach

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  • Javier García - Cicco
  • Roque Montero

Abstract

This paper explores the virtues of Markov-Switching models to characterize the behavior of copper price. In particular, we study the performance of several univariate specifications of this type of models, both in and out of sample, comparing them also with constant parameter models such as ARMA and GARCH. The main finding is that allowing for a regime-switching variance in the error term is most relevant in explaining the behavior of this price.

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Bibliographic Info

Paper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 613.

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Date of creation: Feb 2011
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Handle: RePEc:chb:bcchwp:613

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  1. Han Hong & Bruce Preston, 2008. "Bayesian Averaging, Prediction and Nonnested Model Selection," NBER Working Papers 14284, National Bureau of Economic Research, Inc.
  2. Raffaella Giacomini & Halbert White, 2003. "Tests of conditional predictive ability," Boston College Working Papers in Economics 572, Boston College Department of Economics.
  3. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  4. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
  5. Choi, Kyongwook & Hammoudeh, Shawkat, 2010. "Volatility behavior of oil, industrial commodity and stock markets in a regime-switching environment," Energy Policy, Elsevier, vol. 38(8), pages 4388-4399, August.
  6. Chan, Wing Hong & Young, Denise, 2009. "A New Look at Copper Markets: A Regime-Switching Jump Model," Working Papers 2009-13, University of Alberta, Department of Economics.
  7. Chernozhukov, Victor & Hong, Han, 2003. "An MCMC approach to classical estimation," Journal of Econometrics, Elsevier, vol. 115(2), pages 293-346, August.
  8. René Garcia, 1995. "Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models," CIRANO Working Papers 95s-07, CIRANO.
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Cited by:
  1. Roque Montero, 2012. "Does Linearity in the Dynamics of Inflation Gap and Unemployment Rate Matter?," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 27(1), pages 3-26, April.

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