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Specification Testing of Markov Switching Models*
Author(s) -
Breunig Robert,
Najarian Serinah,
Pagan Adrian
Publication year - 2003
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1046/j.0305-9049.2003.00093.x
Subject(s) - parametric statistics , consistency (knowledge bases) , goodness of fit , markov chain , computer science , set (abstract data type) , econometrics , mathematics , statistics , artificial intelligence , programming language
This paper proposes a set of formal tests to address the goodness‐of‐fit of Markov switching models. These formal tests are constructed as tests of model consistency and of both parametric and non‐parametric encompassing. The formal tests are then combined with informal tests using simulation in combination with non‐parametric density and conditional mean estimation. The informal tests are shown to be useful in shedding light on the failure (or success) of the encompassing tests. Several examples are provided.