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Do Bubbles have an Explosive Signature in Markov Switching Models?

Balcombe, Kelvin, Fraser, Iain M (2017) Do Bubbles have an Explosive Signature in Markov Switching Models? Economic Modelling, 66 . pp. 81-100. ISSN 0264-9993. (doi:10.1016/j.econmod.2017.06.001) (KAR id:62115)

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https://dx.doi.org/10.1016/j.econmod.2017.06.001

Abstract

We investigate nine data series previously identified as containing bubbles using Bayesian Markov switching models. Nearly all series appear to display strong regime switching that could possibly be induced by `bubble' processes, but in each case the type of model that best describes each price differs substantively. We pay particular attention to whether these series contain transient explosive roots, a feature which has been suggested to exist in several bubble formulations. Bayesian model averaging is employed which allows us to average across a range of submodels, so that our empirical findings are not based on only one well performing model. We show that explosive regimes may exist in many submodels, but only when the flexibility of the model is limited in other important respects. In particular, when Markov switching models allow for switching levels of error variance, explosive root regimes occur in only a minority of the series.

Item Type: Article
DOI/Identification number: 10.1016/j.econmod.2017.06.001
Uncontrolled keywords: Explosive Root Regimes, Transient Explosive Roots, Bubbles, Bayesian Model Averaging
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculties > Social Sciences > School of Economics
Depositing User: Iain Fraser
Date Deposited: 22 Jun 2017 16:34 UTC
Last Modified: 01 Aug 2019 10:42 UTC
Resource URI: https://kar.kent.ac.uk/id/eprint/62115 (The current URI for this page, for reference purposes)
Fraser, Iain M: https://orcid.org/0000-0002-4689-6020
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