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Autocovariance and Linear Transformations of Markov Switching VARMA Processes

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  • Maddalena Cavicchioli

    (University of Modena and Reggio Emilia)

Abstract

We study the autocovariance structure of a general Markov switching second-order stationary VARMA model. Then we give stable finite order VARMA(p*, q*) representations for those M-state Markov switching VARMA(p, q) processes where the observables are uncorrelated with the regime variables. This allows us to obtain sharper bounds for p* and q* with respect to the ones existing in literature. Our results provide new insights into stochastic properties and facilitate statistical inference about the orders of MS-VARMA models and the underlying number of hidden states.

Suggested Citation

  • Maddalena Cavicchioli, 2014. "Autocovariance and Linear Transformations of Markov Switching VARMA Processes," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 6(4), pages 275-289, December.
    • Handle: RePEc:psc:journl:v:6:y:2014:i:4:p:275-289
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    References listed on IDEAS

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    1. Jing Zhang & Robert A. Stine, 2001. "Autocovariance Structure of Markov Regime Switching Models and Model Selection," Journal of Time Series Analysis, Wiley Blackwell, vol. 22(1), pages 107-124, January.
    2. Massimo Guidolin, 2011. "Markov Switching Models in Empirical Finance," Advances in Econometrics, in: Missing Data Methods: Time-Series Methods and Applications, pages 1-86, Emerald Group Publishing Limited.
    3. Maddalena Cavicchioli, 2014. "Determining The Number Of Regimes In Markov Switching Var And Vma Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 35(2), pages 173-186, March.
    4. Bergman, U. Michael & Hansson, Jesper, 2005. "Real exchange rates and switching regimes," Journal of International Money and Finance, Elsevier, vol. 24(1), pages 121-138, February.
    5. Dumas, Bernard, 1992. "Dynamic Equilibrium and the Real Exchange Rate in a Spatially Separated World," The Review of Financial Studies, Society for Financial Studies, vol. 5(2), pages 153-180.
    6. Zacharias Psaradakis & Nicola Spagnolo, 2003. "On The Determination Of The Number Of Regimes In Markov‐Switching Autoregressive Models," Journal of Time Series Analysis, Wiley Blackwell, vol. 24(2), pages 237-252, March.
    7. Yang, Minxian, 2000. "Some Properties Of Vector Autoregressive Processes With Markov-Switching Coefficients," Econometric Theory, Cambridge University Press, vol. 16(1), pages 23-43, February.
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    Cited by:

    1. Maddalena Cavicchioli, 2020. "Invertibility and VAR Representations of Time-Varying Dynamic Stochastic General Equilibrium Models," Computational Economics, Springer;Society for Computational Economics, vol. 55(1), pages 61-86, January.

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    More about this item

    Keywords

    time series; multivariate ARMA; state-space models; Markov chains; changes in regime; autocovariance; linear representations;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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