The Multi-Chain Markov Switching Model

In many real phenomena the behaviour of a certain variable, subject to different
regimes, depends on the state of other variables or the same variable
observed in other subjects, so the knowledge of the state of the latter could be
important to forecast the state of the former. In this paper a particular multivariate
Markov switching model is developed to represent this case. The transition
probabilities of this model are characterized by the dependence on the
regime of the other variables. The estimation of the transition probabilities
provides useful information for the researcher to forecast the regime of the
variables analysed. Theoretical background and an application are shown.