IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Markov Regime-Switching Tests: Asymptotic Critical Values

  • Steigerwald, Douglas
  • Carter, Andrew

Empirical research with Markov regime-switching models often requires the researcher not only to estimate the model but also to test for the presence of more than one regime. Despite the need for both estimation and testing, methods of estimation are better understood than are methods of testing. We bridge this gap by explaining, in detail, how to apply the newest results in the theory of regime testing, developed by Cho and White [Cho, J. S., and H. White 2007. “Testing for Regime Switching.” Econometrica 75 (6): 1671–1720.]. A key insight in Cho and White is to expand the null region to guard against false rejection of the null hypothesis due to a small group of extremal values. Because the resulting asymptotic null distribution is a function of a Gaussian process, the critical values are not obtained from a closed-form distribution such as the χ². Moreover, the critical values depend on the covariance of the Gaussian process and so depend both on the specification of the model and the specification of the parameter space. To ease the task of calculating critical values, we describe the limit theory and detail how the covariance of the Gaussian process is linked to the specification of both the model and the parameter space. Further, we show that for linear models with Gaussian errors, the relevant parameter space governs a standardized index of regime separation, so one need only refer to the tabulated critical values we present. While the test statistic under study is designed to detect regime switching in the intercept, the test can be used to detect broader alternatives in which slope coefficients and error variances may also switch over regimes.

(This abstract was borrowed from another version of this item.)

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.escholarship.org/uc/item/5rn986z6.pdf;origin=repeccitec
Download Restriction: no

Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt5rn986z6.

as
in new window

Length:
Date of creation: 12 Aug 2011
Date of revision:
Handle: RePEc:cdl:ucsbec:qt5rn986z6
Contact details of provider: Postal: 2127 North Hall, Santa Barbara, CA 93106-9210
Phone: (805) 893-3670
Fax: (805) 893-8830
Web page: http://www.escholarship.org/repec/ucsbecon_dwp/

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Stephen G. Cecchetti & Pok-sang Lam & Nelson C. Mark, 1988. "Mean Reversion in Equilibrium Asset Prices," NBER Working Papers 2762, National Bureau of Economic Research, Inc.
  2. Andrew V. Carter & Douglas G. Steigerwald, 2012. "Testing for Regime Switching: A Comment," Econometrica, Econometric Society, vol. 80(4), pages 1809-1812, 07.
  3. Jin Seo Cho & Halbert White, 2007. "Testing for Regime Switching," Econometrica, Econometric Society, vol. 75(6), pages 1671-1720, November.
  4. René Garcia, 1995. "Asymptotic Null Distribution of the Likelihood Ratio Test in Markov Switching Models," CIRANO Working Papers 95s-07, CIRANO.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cdl:ucsbec:qt5rn986z6. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.