LIKELIHOOD-BASED ANALYSIS IN MIXTURE GLOBAL VARs

In this paper we propose a mixture global vector autoregressive model with exogenous variables to study country/region interdependencies that exist between national and international variables in the world economy. This model generalizes the linear one introduced by Pesaran et al. ( Journal of Business & Economic Statistics 22(2):129–162, 2004) taking into account the possibility of contagion effects. Then, we give a complete solution of the above mixture global model, discuss its stability properties, and provide a likelihood-based analysis of the country/region specific models. Finally, a simulation experiment is presented to demonstrate the utility of the proposed algorithm and the nature of the problems under consideration.