State Space Models with Endogenous Regime Switching

In the new CAMP working paper 09/2018 Chang, Maih and Tan aims at broadening the scope for understanding the complex interaction between recurrent structural changes and measured economic behavior.

They study the estimation of state space models whose parameters are switching endogenously between two regimes, depending on whether an autoregressive latent factor crosses some threshold level.

Their approach provides a greater scope for understanding the complex interaction between regime switching and measured economic behavior.

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