We estimate a Markov-switching mixture of two familiar macroeconomic models: A richly parameterized DSGE model and a corresponding BVAR model. We show that the Markov-switching mixture model dominates both individual models and improves the fit considerably. Our estimation indicates that the...

In structural vector autoregressive (SVAR) analysis a Markov regime switching (MS) property can be exploited to identify shocks if the reduced form error covariance matrix varies across regimes. Unfortunately, these shocks may not have a meaningful structural economic interpretation. It is...