SOME REGIME-SWITCHING MODELS FOR ECONOMIC TIME SERIES: A COMPARATIVE STUDY

Year 2022, Volume: 23 Issue: 1, 48 - 69, 30.03.2022

Dursun Aydın , Selman Mermi

https://doi.org/10.18038/estubtda.881251

Abstract

Keywords

Markov-Switching Model, Nonlinear Time Series Models, SETAR, STAR

SOME REGIME-SWITCHING MODELS FOR ECONOMIC TIME SERIES: A COMPARATIVE STUDY

Abstract

This paper mainly discusses some regime-switching models and explore their usefulness in modeling the economic time series. In recent years, several time series models have been proposed which shape the idea of the existence of different regimes produced by a stochastic process. Especially, nonlinear time series models have gained more attention because linear time series models faced various limitations. The purpose of this study is to establish the methodology of the Self-Exciting Threshold Autoregressive (SETAR) model, Smooth Transition Autoregressive (STAR) model and Markov-Switching (MSW) model from parametric nonlinear time series models in the mean and to compare these models with each other through two financial data sets. For this purpose, some theoretical information on the subject models are given without going into too much detail. In the light of the obtained theoretical information, all models are modeled by using two financial data sets. The obtained models are compared with the help of some performance criteria, measurement of relative efficiency and graph showing the relation of the actual-fitted values of the models.

Keywords

Markov-Switching Model, Nonlinear Time Series Models, SETAR, STAR

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