TY  - JOUR
AU  - Diebold,Francis X.
AU  - Inoue,Atsushi
TI  - Long Memory and Regime Switching
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 264
PY  - 2000
Y2  - November 2000
UR  - http://www.nber.org/papers/t0264
L1  - http://www.nber.org/papers/t0264.pdf
N1  - Author contact info:
Francis X. Diebold
Department of Economics
University of Pennsylvania
3718 Locust Walk
Philadelphia, PA  19104-6297
Tel: 215/898-1507
Fax: 212/573-4217
E-Mail: fdiebold@sas.upenn.edu

Atsushi Inoue
North Carolina State University
Department of Agricultural and Resource Economics,
Raleigh, NC 27695-8109
E-Mail: atsushi@ncsu.edu
AB  - 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.
ER  -