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TIME-SERIES MODEL WITH PERIODIC STOCHASTIC REGIME SWITCHING

Part I: Theory

Published online by Cambridge University Press:  16 January 2001

Eric Ghysels
Affiliation:
University of North Carolina and Centre Interuniversitaire de Recherche en Analyse des Organisations

Abstract

We present a class of stochastic regime-switching models. The time-series models may have periodic transition probabilities and the drifts may be seasonal. In the latter case, the model exhibits seasonal dummy variation that may change with the regime. The processes entail nontrivial interactions between so-called business and seasonal cycles. We discuss the stochastic properties as well as their relationship with periodic ARMA processes. Estimation and testing are also discussed in detail.

Type
Research Article
Copyright
© 2000 Cambridge University Press

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