Dynamic linear models with Markov-switching

Research output: Contribution to journalArticle

568 Citations (Scopus)

Abstract

In this paper, Hamilton's (1988, 1989) Markov-switching model is extended to a general state-space model. This paper also complements Shumway and Stoffer's (1991) dynamic linear models with switching, by introducing dependence in the switching process, and by allowing switching in both measurement and transition equations. Building upon ideas in Hamilton (1989), Cosslett and Lee (1985), and Harrison and Stevens (1976), a basic filtering and smoothing algorithm is presented. The algorithm and the maximum likelihood estimation procedure is applied in estimating Lam's (1990) generalized Hamilton model with a general autoregressive component. The estimation results show that the approximation employed in this paper performs an excellent job, with a considerable advantage in computation time. A state-space representation is a very flexible form, and the approach taken in this paper therefore allows a broad class of models to be estimated that could not be handled before. In addition, the algorithm for calculating smoothed inferences on the unobserved states is a vastly more efficient one than that in the literature.

Original languageEnglish
Pages (from-to)1-22
Number of pages22
JournalJournal of Econometrics
Volume60
Issue number1-2
Publication statusPublished - 1994 Jan 1

Fingerprint

Dynamic Linear Models
Markov Switching
Markov Switching Model
Smoothing Algorithm
State-space Representation
State-space Model
Maximum Likelihood Estimation
Complement
Filtering
Maximum likelihood estimation
Approximation
Model
Markov switching
Dynamic linear models

Keywords

  • Basic filtering
  • Generalized Hamilton model
  • Markov-switching
  • Smoothing
  • State-space model

ASJC Scopus subject areas

  • Statistics and Probability
  • Finance
  • Economics and Econometrics

Cite this

Dynamic linear models with Markov-switching. / Kim, Chang-Jin.

In: Journal of Econometrics, Vol. 60, No. 1-2, 01.01.1994, p. 1-22.

Research output: Contribution to journalArticle

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