The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Incorporating Vintage Differences and Forecasts into Markov Switching Models
Jeremy J. Nalewaik

Abstract: This paper discusses extensions of standard Markov switching models that allow estimated probabilities to reflect parameter breaks at or close to the end of the sample, too close for standard maximum likelihood techniques to produce precise parameter estimates. The basic technique is a supplementary estimation procedure, bringing additional information to bear to estimate the statistical properties of the end-of-sample observations that behave differently from the rest. Empirical results using real-time data show that these techniques improve the ability of a Markov switching model based on GDP and GDI to recognize the start of the 2001 recession.

Keywords: Recessions, Markov Switching Models

Full paper (388 KB PDF) | Full Paper (Screen Reader Version)

Home | FEDS | List of 2007 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: June 6, 2007