Maximum Likelihood Estimation in Possibly Misspecified Dynamic Models with Time Inhomogeneous Markov Regimes

53 Pages Posted: 20 Dec 2016

See all articles by Demian Pouzo

Demian Pouzo

University of California, Berkeley - Department of Economics

Zacharias Psaradakis

University of London - Economics, Mathematics and Statistics

Martín Sola

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

Date Written: December 14, 2016

Abstract

This paper considers maximum likelihood (ML) estimation in a large class of models with hidden Markov regimes. We investigate consistency and local asymptotic normality of the ML estimator under general conditions which allow for autoregressive dynamics in the observable process, time-inhomogeneous Markov regime sequences, and possible model misspecification. A Monte Carlo study examines the finite-sample properties of the ML estimator. An empirical application is also discussed.

Keywords: Autoregressive model, consistency, hidden Markov model, Markov regimes, maximum likelihood, local asymptotic normality, misspecified models, time-inhomogenous Markov chain

Suggested Citation

Pouzo, Demian and Psaradakis, Zacharias and Sola, Martín, Maximum Likelihood Estimation in Possibly Misspecified Dynamic Models with Time Inhomogeneous Markov Regimes (December 14, 2016). Available at SSRN: https://ssrn.com/abstract=2887771 or http://dx.doi.org/10.2139/ssrn.2887771

Demian Pouzo (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

Zacharias Psaradakis

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

7-15 Gresse Street
London, WC1E 7HX
United Kingdom
+44 20 7631 6415 (Phone)
+44 20 7631 6416 (Fax)

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

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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