We exactly derive the regime-dependent impulse response functions for a Markov switching vector autoregression (VAR) model in terms of neat matrix expressions in closed form. The key is to recognize that the latent first-order Markov switching process in the model has a VAR(1) representation, and that the model can be cast into a state-space form. Using such a representation, the regime-dependent impulse response function analysis can be processed with respect to either an asymmetric discrete shock or to a symmetric continuous shock. Our results extend and correct those obtained by Ehrmann et al. (2003) and coincide with those by Hamilton (1994) for the case of standard VAR models.

Impulse response function analysis for Markov switching var models / Cavicchioli, Maddalena. - In: ECONOMICS LETTERS. - ISSN 0165-1765. - 232:(2023), pp. 1-4. [10.1016/j.econlet.2023.111357]

Impulse response function analysis for Markov switching var models

Cavicchioli Maddalena
2023

Abstract

We exactly derive the regime-dependent impulse response functions for a Markov switching vector autoregression (VAR) model in terms of neat matrix expressions in closed form. The key is to recognize that the latent first-order Markov switching process in the model has a VAR(1) representation, and that the model can be cast into a state-space form. Using such a representation, the regime-dependent impulse response function analysis can be processed with respect to either an asymmetric discrete shock or to a symmetric continuous shock. Our results extend and correct those obtained by Ehrmann et al. (2003) and coincide with those by Hamilton (1994) for the case of standard VAR models.
2023
232
1
4
Impulse response function analysis for Markov switching var models / Cavicchioli, Maddalena. - In: ECONOMICS LETTERS. - ISSN 0165-1765. - 232:(2023), pp. 1-4. [10.1016/j.econlet.2023.111357]
Cavicchioli, Maddalena
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/1326146
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