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Threshold Autoregression for Strongly Autocorrelated Time Series

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Author Info

  • Lanne, M.
  • Saikkonen, P.

Abstract

In some cases the unit root or near unit root behavior of linear autoregressive models fitted to economic time series is not in accordance with the underlying economic theory. To accommodate this feature we consider a threshold autoregressive process with the threshold effect only in the intercept term. Although these proceses are stationary, their realizations can closely resemble those of integrated processes for sample sizes relevant in many economic applications. Estimation and inference of these TAR models are discussed, and a specification test for testing their stability is derived. Testing is based on the idea that if integratedness is really caused by level shifts, the series pruged of these shifts should be stable so that known stationarity tests can be applied to this series. Simulation results indicate that in certain cases this test like several linearity tests can have low power. The proposed model is applied to interest rate data.

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Bibliographic Info

Paper provided by Department of Economics in its series University of Helsinki, Department of Economics with number 489.

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Length: 26 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:fth:helsec:489

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Postal: University of Helsinki; Department of Economics, P.O.Box 54 (Unioninkatu 37) FIN-00014 Helsingin Yliopisto
Phone: +358 9 191 8897
Fax: +358 9 191 8877
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Web page: http://www.helsinki.fi/politiikkajatalous/
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Keywords: TESTS ; MODELS ; TIME SERIES;

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Cited by:
  1. Theofanis Archontakis & Wolfgang Lemke, 2008. "Threshold Dynamics of Short-term Interest Rates: Empirical Evidence and Implications for the Term Structure," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 37(1), pages 75-117, 02.
  2. Terence D.Agbeyegbe & Elena Goldman, 2005. "Estimation of threshold time series models using efficient jump MCMC," Hunter College Department of Economics Working Papers 406, Hunter College: Department of Economics, revised 2005.
  3. Kirstin Hubrich & Timo Teräsvirta, 2013. "Thresholds and Smooth Transitions in Vector Autoregressive Models," CREATES Research Papers 2013-18, School of Economics and Management, University of Aarhus.
  4. Jarkko Jääskelä, 2007. "More Potent Monetary Policy? Insights from a Threshold Model," RBA Research Discussion Papers rdp2007-07, Reserve Bank of Australia.
  5. Anders Bredahl Kock & Timo Teräsvirta, 2010. "Forecasting with nonlinear time series models," CREATES Research Papers 2010-01, School of Economics and Management, University of Aarhus.
  6. Clive G. Bowsher & Roland Meeks, 2008. "Stationarity and the term structure of interest rates: a characterisation of stationary and unit root yield curves," Working Papers 0811, Federal Reserve Bank of Dallas.

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