An Econometric Analysis of Some Models for Constructed Binary Time Series

Don Harding, Adrian Pagan
2011 Journal of business & economic statistics  
Macroeconometric and ...nancial researchers often use binary data constructed in a way that creates serial dependence. We show that this dependence can be allowed for if the binary states are treated as Markov processes. In addition, the methods of construction ensure that certain sequences are never observed in the constructed data. Together these features make it di¢ cult to utilize static and dynamic Probit models. We develop modelling methods that respects the Markov process nature of
more » ... ucted binary data and explicitly deals with censoring constraints. An application is provided that investigates the relation between the business cycle and the yield spread.
doi:10.1198/jbes.2009.08005 fatcat:rosuaw66jzevrobyy4fut5bsze