B0311
Title: Jointly determining the state dimension and lag order for Markov-switching vector autoregressive models
Authors: Nan Li - Barclays (United Kingdom) [presenting]
Simon Kwok - University of Sydney (Australia)
Abstract: The focus is on the problem of joint selection of the state dimension and lag order for a class of Markov-switching vector autoregressive models, in which all parameters are presumed to be regime-dependent. To this end, three complexity-penalized criteria are considered, and a new criterion is derived by minimising the Kullback-Leibler divergence. The accuracy of the procedure is evaluated by means of Monte Carlo experiments. We illustrate the usefulness of the joint model selection procedure with empirical applications to the modelling of business cycles in the U.S. and Australia.
