Abstract

This paper develops a series of specification tests of Markov-switching time-series models. Tests for omitted cytocorrelation, omitted ARCH, misspecificationg of the Markovian dynamics, and omitted explanatory variables are proposed. All of the tests can be constructed as a natural byproduct of the routine used to calculate the 'smoothed' probability that a given obsrevation came from a particular regime, and do not require estimation of additional parameters. the paper performs Monte Carlo analysis of the tests and briefly illustrates their use with an empircal application.