DP9815 Markov-Switching Mixed-Frequency VAR Models

Author(s): Claudia Foroni, Pierre Guérin, Massimiliano Marcellino
Publication Date: February 2014
Keyword(s): Fore-, Markov-switching, MIDAS, Mixed-frequency VAR, Nowcasting
JEL(s): C53, E32, E37
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9815

This paper introduces regime switching parameters in the Mixed-Frequency VAR model. We first discuss estimation and inference for Markov-switching Mixed-Frequency VAR (MSMF-VAR) models. Next, we assess the finite sample performance of the technique in Monte-Carlo experiments. Finally, the MSMF-VAR model is applied to predict GDP growth and business cycle turning points in the euro area. Its performance is compared with that of a number of competing models, including linear and regime switching mixed data sampling (MIDAS) models. The results suggest that MSMF-VAR models are particularly useful to estimate the status of economic activity.