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Two competitive models and their identification problem: The ESTAR and TSTAR model

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  • Heinen, Florian
  • Michael, Stefanie
  • Sibbertsen, Philipp

Abstract

Determining good parameter estimates in ESTAR models is known to be diffcult. We show that the phenomena of getting strongly biased estimators is a consequence of the so-called identifcation problem, the problem of properly distinguishing the transition function in relation to extreme parameter combinations. This happens in particular for either very small or very large values of the error term variance. Furthermore, we introduce a new alternative model -the TSTAR model- which has similar properties as the ESTAR model but reduces the effects of the identifcation problem. We also derive a linearity and a unit root test for this model.

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File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-474.pdf
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Bibliographic Info

Paper provided by Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Hannover Economic Papers (HEP) with number dp-474.

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Length: 36 pages
Date of creation: May 2011
Date of revision:
Handle: RePEc:han:dpaper:dp-474

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Keywords: Nonlinearities; Smooth transition; Linearity testing; Unit root testing; Real exchange rates;

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