Long Memory and Regime Switching / Francis X. Diebold, Atsushi Inoue.

Format:

Book

Author/Creator:

Diebold, Francis X.

Contributor:

National Bureau of Economic Research.

Inoue, Atsushi.

Series:

Technical Working Paper Series (National Bureau of Economic Research) no. t0264.

NBER technical working paper series no. t0264

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2000.

Summary:

The theoretical and empirical econometric literatures on long memory and regime switching have evolved largely independently, as the phenomena appear distinct. We argue, in contrast, that they are intimately related, and we substantiate our claim in several environments, including a simple mixture model, Engle and Lee's (1999) stochastic permanent break model, and Hamilton's (1989) Markov switching model. In particular, we show analytically that stochastic regime switching is easily confused with long memory, even asymptotically, so long as only a small' amount of regime switching occurs, in a sense that we make precise. A Monte Carlo analysis supports the relevance of the theory and produces additional insights.

Notes:

Print version record

November 2000.