A bayesian change point with regime switching model

Abstract

© 2016 by the Mathematical Association of Thailand. All rights reserved. This paper extends the threshold model to Markov Switching model in order to relax a linear function between dependent and independent variables. The model allows non-linear function using the idea of Threshold model. We conducted both simulation and real data studies to evaluate the performance of the proposed model and found that the model performs well in both simulation and application studies. The application study revealed the negative impact of unemployment rate on industry production index when the market stays in recession and depression period. Conversely, the positive impact of Unemployment rate to Industry Production index is empirically evident during expansion and boom period.