Change in Regime and Markov Models
Working paper
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Date
1997-11Metadata
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- Discussion Papers [1002]
Abstract
In this paper we point out that using a two-state Markov chain to describe change in regime makes it difficult to interpret the model since there is a bias towards frequent shifts. However, by using a finite Markov chain with a transition matrix satisfying certain restrictions it is possible to circumvent the difficulty and at the same time use the established procedures for estimation and filtering. The methods are applied to a couple of time series from the Norwegian quarterly national accounts.