The key difference between threshold autoregressive and Markov switching models is that:
A) The latter can be estimated using ordinary least squares while the latter is estimated using indirect least squares estimation technique
B) Under the latter, the state variable is assumed to be known and observable, while it is latent under the former
C) Under the former, the state variable is assumed to be known and observable, while it is latent under the latter
D) None of the above

Question

Quizplus · Accepted Answer

Threshold autoregressive models assume the state variable is observable and switches according to the level of an observable variable, whereas Markov switching models assume the state is unobservable and follows a Markov process.

The Key Difference Between Threshold Autoregressive and Markov Switching Models