{"title":"Forecasting Markov switching vector autoregressions: Evidence from simulation and application","authors":"Maddalena Cavicchioli","doi":"10.1002/for.3180","DOIUrl":null,"url":null,"abstract":"We derive the optimal forecasts for multivariate autoregressive time series processes subject to Markov switching in regime. Optimality means that the trace of the mean square forecast error matrix is minimized by using suitable weighting observations. Then we provide neat analytic expressions for the optimal weights in terms of the matrices involved in a state space representation of the considered process. Our matrix expressions in closed form improve computational performance since they are readily programmable. Numerical simulations and an empirical application illustrate the feasibility of the proposed approach. We provide evidence that the forecasts using optimal weights increase forecast precision and are more accurate than the traditional Markov switching alternatives.","PeriodicalId":47835,"journal":{"name":"Journal of Forecasting","volume":null,"pages":null},"PeriodicalIF":3.4000,"publicationDate":"2024-08-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Forecasting","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1002/for.3180","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
We derive the optimal forecasts for multivariate autoregressive time series processes subject to Markov switching in regime. Optimality means that the trace of the mean square forecast error matrix is minimized by using suitable weighting observations. Then we provide neat analytic expressions for the optimal weights in terms of the matrices involved in a state space representation of the considered process. Our matrix expressions in closed form improve computational performance since they are readily programmable. Numerical simulations and an empirical application illustrate the feasibility of the proposed approach. We provide evidence that the forecasts using optimal weights increase forecast precision and are more accurate than the traditional Markov switching alternatives.
期刊介绍:
The Journal of Forecasting is an international journal that publishes refereed papers on forecasting. It is multidisciplinary, welcoming papers dealing with any aspect of forecasting: theoretical, practical, computational and methodological. A broad interpretation of the topic is taken with approaches from various subject areas, such as statistics, economics, psychology, systems engineering and social sciences, all encouraged. Furthermore, the Journal welcomes a wide diversity of applications in such fields as business, government, technology and the environment. Of particular interest are papers dealing with modelling issues and the relationship of forecasting systems to decision-making processes.