Markov Switching MIDAS models

This article introduces a new regression model—Markov-switching mixed data sampling (MS-MIDAS)— that incorporates regime changes in the parameters of the mixed data sampling (MIDAS) models and allows for the use of mixed-frequency data in Markov-switching models. After a discussion of estimation and inference for MS-MIDAS and a small sample simulation-based evaluation, the MS-MIDAS model is applied to the prediction of the U.S. economic activity, in terms of both quantitative forecasts of the aggregate economic activity and the prediction of the business cycle regimes. Both simulation and empirical results indicate that MS-MIDAS is a very useful specification.