Switching Models in Econometrics: Markov Switching Models

This is the first video in a two-part series that shows how to model time series data in the presence of regime shifts in MATLAB. In this video, William Mueller uses Markov switching models from the Econometrics Toolbox™ to model unemployment data across different economic regimes.

Highlights:

• Import and visualize unemployment data across regimes
• Set up ARIMA or vector auto-regressive sub models to describe the data in each economic state
• Create a discrete-time Markov switching mechanism using the Econometrics Toolbox to transition between different economic states
• Visualize the transition probabilities as well as the switching mechanism for the regime shifts using Markov chain graph plotting functionality
• Assemble a switching model using built-in functionality in the Econometrics Toolbox to switch between the sub models in different macroeconomic regimes
• Estimate model parameters, simulate the estimated model over multiple paths and time periods, and forecast the estimated model from the unemployment data