A mixture autoregressive model based on Gaussian and Student’s t-distributions

Abstract

Abstract We introduce a new mixture autoregressive model which combines Gaussian and Student’s t mixture components. The model has very attractive properties analogous to the Gaussian and Student’s t mixture autoregressive models, but it is more flexible as it enables to model series which consist of both conditionally homoscedastic Gaussian regimes and conditionally heteroscedastic Student’s t regimes. The usefulness of our model is demonstrated in an empirical application to the monthly U.S. interest rate spread between the 3-month Treasury bill rate and the effective federal funds rate.