Title: The Beveridge-Nelson decomposition of Markov switching (co)integrated time series
Authors: Maddalena Cavicchioli - University of Modena and Reggio Emilia (Italy) [presenting]
Abstract: The aim is to derive the Beveridge-Nelson (BN) decomposition and the state space representation for various multivariate (co)integrated time series subject to Markov switching in regime. Then, we provide explicit expressions for the BN trend and cyclical components in terms of the matrices involved in the state space representation of the considered process. This gives computational advantages as only quantities already available are involved in the calculations. Moreover, our matrix expressions in closed-form improve computational performance since they are readily programmable and greatly reduce the computational cost. Then we develop impulse-response function analysis and represent the BN trend component as a random walk. A numerical example illustrates the feasibility of the proposed approach.