Regime-Switching Cointegration

Gary Koop, Markus Jochmann

Research output: Working paperDiscussion paper

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Abstract

We develop methods for Bayesian inference in vector error correction models which are subject to a variety of switches in regime (e.g. Markov switches in regime or structural breaks). An important aspect of our approach is that we allow both the cointegrating vectors and the number of cointegrating relationships to change when the regime changes. We show how Bayesian model averaging or model selection methods can be used to deal with the high-dimensional model space that results. Our methods are used in an empirical study of the Fisher effect.
Original languageEnglish
Place of PublicationGlasgow
PublisherUniversity of Strathclyde
Pages1-22
Number of pages23
Volume11
Publication statusPublished - May 2011

Keywords

  • bayesian
  • markov switching
  • structural breaks
  • cointegration
  • model averaging

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