In this article, we propose a new test for Markov switching models. Unlike the tests in the existing literature (e.g. Hansen, 1992; Garcia, 1998; Cho and White, 2007), we focus on testing the null of two regimes, instead of one single regime, in a switching framework. To implement our test, we propose a...

We investigate Campbell and Mankiw's 'rule of thumb' consumption model using data from five East Asian countries. We find that the fraction of income attributed to the 'rule of thumb' consumers are generally substantial for these countries. In particular, the fractions for them are generally...