Estimation of TAR Models
AbstractA distribution theory is developed for least squares estimates of the threshold in threshold autoregressive (TAR) models. We find that if we let the threshold effect (the difference in slopes between the two regimes) get small as the sample size increases, then the asymptotic distribution of the threshold estimator is free of nuisance parameters (up to scale). Similarly, the likelihood ratio statistic for testing hypotheses concerning the unknown threshold is asymptotically free of nuisance parameters. These asymptotic distributions are non-standard, but are available in closed form so critical values are readily available. To illustrate this theory, we report applications of these methods to TAR models fit to the U.S. unemployment rate and to the U.S. 3-month Treasury Bill rate. We find statistically significant threshold effects.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 325..
Length: 24 pages
Date of creation: 01 Jan 1996
Date of revision:
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TAR; threshold autoregression; Markov switching;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
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