Bayesian Markov Regime-Switching Models for Cointegration

Kai Cui, Wenshan Cui

Department of Statistical Science, Duke University, Durham, USA.
School of Science and Information, Qingdao Agricultural University, Qingdao, China.

DOI: 10.4236/am.2012.312259                

Abstract

This paper introduces a Bayesian Markov regime-switching model that allows the cointegration relationship between two time series to be switched on and off over time. Unlike classical approaches for testing and modeling cointegration, the Bayesian Markov switching method allows for estimation of the regime-specific model parameters via Markov Chain Monte Carlo and generates more reliable estimation. Inference of regime switching also provides important information for further analysis and decision making.

Keywords

Cointegration; Regime-Switching; Bayesian; MCMC

Conflicts of Interest

The authors declare no conflicts of interest.

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