Monte Carlo likelihood-ratio tests for Markov switching models / Gabriel Rodriguez Rondon, Jean-Marie Dufour. : FB3-5/2026-23E-PDF

"Markov switching models are widely used to capture nonlinearities arising from regime shifts. Most existing tests for the number of regimes focus on one versus two regimes. Even in such simple cases, this type of problem raises issues of non-standard asymptotic distributions, identification failure, and nuisance parameters. We address these difficulties by applying the technique of Monte Carlo tests, which yields both finite-sample and asymptotically valid procedures, without the need to establish an asymptotic distributional theory, nor the existence of an asymptotic distribution"--Abstract.

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