Comparing smooth transition and Markov switching autoregressive models of US Unemployment

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Comparing smooth transition and Markov switching autoregressive models of US Unemployment

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Philippe J. Deschamps () (Department of Quantitative Economics)

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Philippe J. Deschamps

Abstract

Logistic smooth transition and Markov switching autoregressive models of a logistic transform of the monthly US unemployment rate are estimated by Markov chain Monte Carlo methods. The Markov switching model is identified by constraining the first autoregression coefficient to differ across regimes. The transition variable in the LSTAR model is the lagged seasonal difference of the unemployment rate. Out of sample forecasts are obtained from Bayesian predictive densities. Although both models provide very similar descriptions, Bayes factors and predictive efficiency tests (both Bayesian and classical) favor the smooth transition model.

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Paper provided by Department of Quantitative Economics, University of Freiburg/Fribourg Switzerland in its series DQE Working Papers with number 7.

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Length: 37 pages
Date of creation: 24 May 2007
Date of revision: 04 Jun 2008
Publication status: Published in the Journal of Applied Econometrics, 2008, vol. 23, no. 4, pp. 435-462.
Handle: RePEc:fri:dqewps:wp0007

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Article
- Philippe J. Deschamps, 2008. "Comparing smooth transition and Markov switching autoregressive models of US unemployment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(4), pages 435-462. [Downloadable!]

Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E27 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation

This paper has been announced in the following NEP Reports:

NEP-ALL-2007-06-02 (All new papers)
NEP-ECM-2007-06-02 (Econometrics)
NEP-ETS-2007-06-02 (Econometric Time Series)
NEP-FOR-2007-06-02 (Forecasting)
NEP-LAB-2007-06-02 (Labour Economics)
NEP-MAC-2007-06-02 (Macroeconomics)

References listed on IDEAS
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

David Peel & Ivan Paya & E Pavlidis, 2009. "Specifying Smooth Transition Regression Models in the Presence of Conditional Heteroskedasticity of Unknown Form," Working Papers 005913, Lancaster University Management School, Economics Department. [Downloadable!]

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