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REGIME-SWITCHING AUTOREGRESSIVE COEFFICIENTS AND THE ASYMPTOTICS FOR UNIT ROOT TESTS

Published online by Cambridge University Press:  22 April 2008

Giuseppe Cavaliere  and
Iliyan Georgiev
Giuseppe Cavaliere
Affiliation:
Università di Bologna
Iliyan Georgiev*
Affiliation:
Universidade Nova de Lisboa
*
Address correspondence to Iliyan Georgiev, Faculdade de Economia, Universidade Nova de Lisboa, Campus de Campolide, PT 1099-032, Lisboa, Portugal; e-mail: [email protected].
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Abstract

Most of the asymptotic results for Markov regime-switching models with possible unit roots are based on specifications implying that the number of regime switches grows to infinity as the sample size increases. Conversely, in this note we derive some new asymptotic results for the case of Markov regime switches that are infrequent in the sense that their number is bounded in probability, even asymptotically. This is achieved by (inversely) relating the probability of regime switching to the sample size. The proposed asymptotic theory is applied to a well-known stochastic unit root model, where the dynamics of the observed variable switches between a unit root regime and a stationary regime.

Type
Notes and Problems
Information
Econometric Theory , Volume 24 , Issue 4 , August 2008 , pp. 1137 - 1148
Copyright
Copyright © Cambridge University Press 2008

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