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Nonlinearities and outliers: robust specification of STAR models

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  • Escribano, A.
  • Franses, Ph.H.B.F.
  • van Dijk, D.J.C.

Abstract

Outliers and nonlinearity may easily be mistaken. This paper uses Monte Carlo methods to examine and compare the behavior of two competing specification procedures for Smooth Transition AutoRegressive [STAR] models under various different circumstances (linear and nonlinear data generating processes, with and without outlier contamination). The extensive simulation evidence demonstrates that the use of outlier-robust variants of the linearity tests which are involved leads to procedures with more desirable properties. An application to several real exchange rate series illustrates the potential usefulness of the robust specification procedures, especially in case one is not certain whether or not aberrant observations are present.

Suggested Citation

  • Escribano, A. & Franses, Ph.H.B.F. & van Dijk, D.J.C., 1998. "Nonlinearities and outliers: robust specification of STAR models," Econometric Institute Research Papers EI 9832, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:1542
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    2. Samira Haddou, 2011. "Is Tunisian Real Effective Exchange Rate Mean Reverting? Evidence from Nonlinear Models," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 18(1), pages 164-178, September.

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