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A Markov Switching Cookbook

Author

Listed:
  • Bruce Mizrach

    (Rutgers University)

  • James Watkins

    (American Express Corporation)

Abstract

This paper examines maximum likelihood estimation via hill climbing and the expectations maximization (EM) algorithm in the context of Hamilton's Markov switching framework. The techniques are explained in detail and are followed by a discussion of both analytic and computational issues. Both algorithms tend to be computer intensive, but an approximation technique is shown to significantly reduce the computational demands of the EM algorithm relative to a Davidon Fletcher Powell hill-climbing routine.

Suggested Citation

  • Bruce Mizrach & James Watkins, 1998. "A Markov Switching Cookbook," Departmental Working Papers 199817, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:199817
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    Cited by:

    1. Nurgun Topalli & İbrahim Dogan, 2016. "The structure and sustainability of current account deficit: Turkish evidence from regime switching," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(4), pages 570-589, June.

    More about this item

    Keywords

    EM algorithm; Markov switching;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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