Multivariate Markov Switching with Weighted Regime Determination: Giving France More Weight than Finland

Federal Reserve Bank of St. Louis Working Paper No. 2008-001A

25 Pages Posted: 6 Jan 2008

See all articles by Michael Dueker

Michael Dueker

Russell Investments

Martín Sola

Universidad Torcuato Di Tella; University of London - Economics, Mathematics and Statistics

Date Written: January 2008

Abstract

This article deals with using panel data to infer regime changes that are common to all of the cross section. The methods presented here apply to Markov switching vector autoregressions, dynamic factor models with Markov switching and other multivariate Markov switching models. The key feature we seek to add to these models is to permit cross-sectional units to have different weights in the calculation of regime probabilities. We apply our approach to estimating a business cycle chronology for the 50 U.S. States and the Euro area, and we compare results between country-specific weights and the usual case of equal weights. The model with weighted regime determination suggests that Europe experienced a recession in 2002-03, whereas the usual model with equal weights does not.

Keywords: Vector autoregression, Regime switching, Business Cycle Turning Point

JEL Classification: F42, C25, C22

Suggested Citation

Dueker, Michael and Sola, Martín, Multivariate Markov Switching with Weighted Regime Determination: Giving France More Weight than Finland (January 2008). Federal Reserve Bank of St. Louis Working Paper No. 2008-001A. Available at SSRN: https://ssrn.com/abstract=1080658 or http://dx.doi.org/10.2139/ssrn.1080658

Michael Dueker (Contact Author)

Russell Investments ( email )

909 A Street
Tacoma, WA 98402
United States

HOME PAGE: http://sites.google.com/site/michaeldueker

Martín Sola

Universidad Torcuato Di Tella ( email )

Minones 2159
1428 Buenos Aires, 1428
Argentina
5411 4784 0080 (Phone)
5411 4784 9807 (Fax)

University of London - Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom
+44 20 7631 6411 (Phone)
+44 20 7631 6416 (Fax)

HOME PAGE: http://www.econ.bbk.ac.uk/faculty/sola/

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