New directions in business cycle research and financial analysis

Abstract

This chapter serves as a partial introduction to and survey of the literature on Markov-switching models. We review the history of this class of models, describe their mathematical structure, and exposit the basic ideas behind estimation and inference. The chapter also describes how the approach can be extended in a variety of directions, such as non-Gaussian distributions, time-varying transition probabilities, vector processes, state-space and GARCH models, and surveys recent methodological advances. The contributions of the other chapters in this book are reviewed. A final section offers conclusions and implications for policy.

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