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Time reversibility of stationary regular finite-state Markov chains. (English) Zbl 1418.62518

Summary: We propose an alternate parameterization of stationary regular finite-state Markov chains, and a decomposition of the parameter into time reversible and time irreversible parts. We demonstrate some useful properties of the decomposition, and propose an index for a certain type of time irreversibility, applicable to chains whose states are naturally ordered. Two empirical examples illustrate the use of the proposed parameter, decomposition and index. One, on gasoline price mark-ups, involves observed states. The other, on U.S. investment growth, features latent states.

MSC:

62P20 Applications of statistics to economics
62F15 Bayesian inference
60J10 Markov chains (discrete-time Markov processes on discrete state spaces)
62M05 Markov processes: estimation; hidden Markov models

Software:

BACC
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References:

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