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Nonlinearities and outliers: robust specification of STAR models

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Author Info

  • 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.

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File URL: http://repub.eur.nl/pub/1542/feweco19981126094918.pdf
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Bibliographic Info

Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 9832.

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Date of creation: 10 Aug 1998
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Handle: RePEc:ems:eureir:1542

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Related research

Keywords: Monte Carlo methods; Outliers; Smooth Transition AutoRegressive models; nonlinearity;

References

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Cited by:
  1. López Villavicencio, Antonia, 2008. "Nonlinearities or outliers in real exchange rates?," Economic Modelling, Elsevier, vol. 25(4), pages 714-730, July.

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