S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Institute for International Economic Studies, Stockholm University Seminar Papers, Institute for International Economic Studies, Stockholm University

No 627:
Rational Expectations in a VAR with Markov Switching

Mårten Blix

Abstract: This paper shows how a well known class of rational expectations hypotheses using linear vector autoregressions (VAR:s) can be extended to allow for unobservable Markov switching. The regime shift model used falls into the general framework of Hamilton (1990), but differs to the centered model actually implemented by Hamilton and others. The model here has the advantage that it is easier to estimate, and the intuitive appeal that the state dependence is symmetric. The contribution of the paper is to derive testable restrictions implied by rational expectations, which are linear when the forecast horizon is infinite. The restrictions on the autoregressive parameters are the same as those that appear in the centered model. As an illustration, we duplicate a test of the expectations hypothesis (EH) in Sola & Driffill (1994) on 3 and 6 month US bills on quarterly data, and find that their results may be fragile.

Keywords: VAR; Markov chain; regime switching; rational expectations; expectations hypothesis; (follow links to similar papers)

JEL-Codes: C12; C32; (follow links to similar papers)

37 pages, October 31, 1997

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

FULLTEXT01    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to Hanna Christiansson ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:iiessp:0627 This page was generated on 2014-12-14 19:23:37