Autoregressive Moving Average Infinite Hidden Markov-Switching Models

47 Pages Posted: 9 May 2017 Last revised: 11 May 2017

See all articles by Luc Bauwens

Luc Bauwens

Université catholique de Louvain

Jean-Francois Carpantier

Universite du Luxembourg

Arnaud Dufays

Université catholique de Louvain, CORE

Date Written: October 20, 2015

Abstract

Markov-switching models are usually specified under the assumption that all the parameters change when a regime switch occurs. Relaxing this hypothesis and being able to detect which parameters evolve over time is relevant for interpreting the changes in the dynamics of the series, for specifying models parsimoniously, and may be helpful in forecasting. We propose the class of sticky infinite hidden Markov-switching autoregressive moving average models, in which we disentangle the break dynamics of the mean and the variance parameters. In this class, the number of regimes is possibly infinite and is determined when estimating the model, thus avoiding the need to set this number by a model choice criterion. We develop a new Markov chain Monte Carlo estimation method that solves the path dependence issue due to the moving average component. Empirical results on macroeconomic series illustrate that the proposed class of models dominates the model with fixed parameters in terms of point and density forecasts.

Appendix available at: https://ssrn.com/abstract=2965668

Keywords: ARMA, Bayesian inference, Dirichlet process, Forecasting

Suggested Citation

Bauwens, Luc and Carpantier, Jean-Francois and Dufays, Arnaud, Autoregressive Moving Average Infinite Hidden Markov-Switching Models (October 20, 2015). Available at SSRN: https://ssrn.com/abstract=2965441 or http://dx.doi.org/10.2139/ssrn.2965441

Luc Bauwens (Contact Author)

Université catholique de Louvain ( email )

CORE
34 Voie du Roman Pays
B-1348 Louvain-la-Neuve, b-1348
Belgium
32 10 474321 (Phone)
32 10 474301 (Fax)

Jean-Francois Carpantier

Universite du Luxembourg ( email )

L-1511 Luxembourg
Luxembourg
00324666446305 (Phone)

HOME PAGE: http://https://sites.google.com/site/econojfc/

Arnaud Dufays

Université catholique de Louvain, CORE ( email )

Place Montesquieu, 3
Louvain-la-Neuve, 1348
Belgium

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
27
Abstract Views
339
PlumX Metrics