Regime-Switching Discrete ARMA Models for Categorical Time Series

Abstract

For the modeling of categorical time series, both nominal or ordinal time series, an extension of the basic discrete autoregressive moving-average (ARMA) models is proposed. It uses an observation-driven regime-switching mechanism, leading to the family of RS-DARMA models. After having discussed the stochastic properties of RS-DARMA models in general, we focus on the particular case of the first-order RS-DAR model. This RS-DAR ( 1 ) model constitutes a parsimoniously parameterized type of Markov chain, which has an easy-to-interpret data-generating mechanism and may also handle negative forms of serial dependence. Approaches for model fitting are elaborated on, and they are illustrated by two real-data examples: the modeling of a nominal sequence from biology, and of an ordinal time series regarding cloudiness. For future research, one might use the RS-DAR ( 1 ) model for constructing parsimonious advanced models, and one might adapt techniques for smoother regime transitions.