DP8234 Markov-switching MIDAS models

Author(s): Pierre Guérin, Massimiliano Marcellino
Publication Date: February 2011
Keyword(s): business cycle, forecasting, mixed-frequency data, non-linear models, nowcasting
JEL(s): C22, C53, E37
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8234

This paper introduces a new regression model - Markov-switching mixed data sampling (MS-MIDAS) - that incorporates regime changes in the parameters of the mixed data sampling (MIDAS) models and allows for the use of mixed-frequency data in Markov-switching models. After a discussion of estimation and inference for MS-MIDAS, and a small sample simulation based evaluation, the MS-MIDAS model is applied to the prediction of the US and UK economic activity, in terms both of quantitative forecasts of the aggregate economic activity and of the prediction of the business cycle regimes. Both simulation and empirical results indicate that MSMIDAS is a very useful specification.