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Maximum Likelihood Estimation in Possibly Misspecified Dynamic Models with Time-Inhomogeneous Markov Regimes

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  • Demian Pouzo
  • Zacharias Psaradakis
  • Martin Sola

Abstract

This paper considers maximum likelihood (ML) estimation in a large class of models with hidden Markov regimes. We investigate consistency and local asymptotic normality of the ML estimator under general conditions which allow for autoregressive dynamics in the observable process, time-inhomogeneous Markov regime sequences, and possible model misspecification. A Monte Carlo study examines the finite-sample properties of the ML estimator. An empirical application is also discussed.

Suggested Citation

  • Demian Pouzo & Zacharias Psaradakis & Martin Sola, 2016. "Maximum Likelihood Estimation in Possibly Misspecified Dynamic Models with Time-Inhomogeneous Markov Regimes," Papers 1612.04932, arXiv.org, revised May 2018.
  • Handle: RePEc:arx:papers:1612.04932
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    1. repec:nbr:nberch:13342 is not listed on IDEAS
    2. Dueker, Michael J. & Sola, Martin & Spagnolo, Fabio, 2007. "Contemporaneous threshold autoregressive models: Estimation, testing and forecasting," Journal of Econometrics, Elsevier, vol. 141(2), pages 517-547, December.
    3. Psaradakis, Zacharias & Sola, Martin, 1998. "Finite-sample properties of the maximum likelihood estimator in autoregressive models with Markov switching," Journal of Econometrics, Elsevier, vol. 86(2), pages 369-386, June.
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    7. Dueker, Michael J. & Psaradakis, Zacharias & Sola, Martin & Spagnolo, Fabio, 2011. "Multivariate contemporaneous-threshold autoregressive models," Journal of Econometrics, Elsevier, vol. 160(2), pages 311-325, February.
    8. White,Halbert, 1996. "Estimation, Inference and Specification Analysis," Cambridge Books, Cambridge University Press, number 9780521574464, December.
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    13. Filardo, Andrew J, 1994. "Business-Cycle Phases and Their Transitional Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(3), pages 299-308, July.
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    15. Chamberlain, Gary, 1992. "Efficiency Bounds for Semiparametric Regression," Econometrica, Econometric Society, vol. 60(3), pages 567-596, May.
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    Cited by:

    1. Martín Sola & Zacharias Psaradakis, 2017. "Markov-Switching Models with State-Dependent Time-Varying Transition Probabilities," Department of Economics Working Papers 2017_01, Universidad Torcuato Di Tella.
    2. repec:udt:wpecon:2017_1 is not listed on IDEAS

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