Obtaining critical values for test of Markov regime switching

For Markov regime-switching models, a nonstandard test statistic must be used to test for the possible presence of multiple regimes. Carter and Steigerwald (2013, Journal of Econometric Methods 2: 25–34) derive the analytic steps needed to implement the Markov regime-switching test proposed by Cho and White (2007, Econometrica 75: 1671–1720). We summarize the implementation steps and address the computational issues that arise. We then introduce a new command to compute regime-switching critical values, rscv, and present it in the context of empirical research.