NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Long Memory and Regime Switching

Francis X. Diebold, Atsushi Inoue

NBER Technical Working Paper No. 264
Issued in November 2000
NBER Program(s):   TWP

The theoretical and empirical econometric literatures on long memory and regime switching have evolved largely independently, as the phenomena appear distinct. We argue, in contrast, that they are intimately related, and we substantiate our claim in several environments, including a simple mixture model, Engle and Lee's (1999) stochastic permanent break model, and Hamilton's (1989) Markov switching model. In particular, we show analytically that stochastic regime switching is easily confused with long memory, even asymptotically, so long as only a small' amount of regime switching occurs, in a sense that we make precise. A Monte Carlo analysis supports the relevance of the theory and produces additional insights.

download in pdf format
   (1396 K)

email paper

This paper is available as PDF (1396 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/t0264

Published: Diebold, Francis X. and Atsushi Inoue. "Long Memory And Regime Switching," Journal of Econometrics, 2001, v105(1,Nov), 131-159.

Users who downloaded this paper also downloaded these:
Backus and Zin t0133 Long-memory Inflation Uncertainty: Evidence from the Term Structure of Interest Rates
Benhabib w14770 A Note on Regime Switching, Monetary Policy, and Multiple Equilibria
Andersen and Bollerslev w6023 Answering the Critics: Yes, ARCH Models Do Provide Good Volatility Forecasts
Lo w2984 Long-term Memory in Stock Market Prices
Engle and Sheppard w8554 Theoretical and Empirical properties of Dynamic Conditional Correlation Multivariate GARCH
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About
Support

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us