Beveridge-Nelson Decomposition with Markov Switching
Chin Nam Low, Heather Anderson and Ralph D. Snyder
This paper considers Beveridge-Nelson decomposition in a context where the permanent and transitory components both follow a Markov switching process. Our approach incorporates Markov switching into a single source of error state-space framework, allowing business cycle asymmetries and regime switches in the long run multiplier.
Keywords: Beveridge-Nelson decomposition, Markov switching; Single source of error state space models
