Conditional Markov chain and its application in economic time series analysis

@inproceedings{Bai2013ConditionalMC,
  title={Conditional Markov chain and its application in economic time series analysis},
  author={Jushan Bai and Peng Wang},
  year={2013}
}
Motivated by the great moderation in major U.S. macroeconomic time series, we formulate the regime switching problem through a conditional Markov chain. We model the long-run volatility change as a recurrent structure change, while short-run changes in the mean growth rate as regime switches. Both structure and regime are unobserved. The structure is assumed to be Markovian. Conditioning on the structure, the regime is also Markovian, whose transition matrix is structure-dependent. This… CONTINUE READING