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Determining the Number of Regimes in a Threshold Autoregressive Model Using Smooth Transition Autoregressions

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Author Info
Strikholm, Birgit () (Dept. of Economic Statistics, Stockholm School of Economics)
Teräsvirta, Timo () (Dept. of Economic Statistics, Stockholm School of Economics)

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Abstract

In this paper we propose a method for determining the number of regimes in threshold autoregressive models using smooth transition autoregression as a tool. As the smooth transition model is just an approximation to the threshold autoregressive one, no asymptotic properties are claimed for the proposed method. Tests available for testing the adequacy of a smooth transition autoregressive model are applied sequentially to determine the number of regimes. A simulation study is performed in order to find out the finite-sample properties of the procedure and to compare it with two other procedures available in the literature. We find that our method works reasonably well for both single and multiple threshold models.

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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 578.

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Length: 28 pages
Date of creation: 11 Jan 2005
Date of revision: 11 Feb 2005
Publication status: Published in Econometrics Journal, 2006, pages 472-491.
Handle: RePEc:hhs:hastef:0578

Note: This is an early version of the paper published under a different title in Econometrics Journal 9, 472-491 (2006).
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Related research
Keywords: Model specification; model selection criterion; nonlinear modelling; sequential testing; switching regression;

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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References listed on IDEAS
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  3. Russell Davidson & James G. MacKinnon, 2001. "Bootstrap Tests: How Many Bootstraps?," Working Papers 1036, Queen's University, Department of Economics. [Downloadable!]
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  4. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
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  5. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March. [Downloadable!] (restricted)
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  6. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November. [Downloadable!] (restricted)
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  7. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June. [Downloadable!]
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  8. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September. [Downloadable!] (restricted)
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  9. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics. [Downloadable!]
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  10. Medeiros, Marcelo & Veiga, Alvaro & Resende, Mauricio, 2000. "A Combinatorial Approach to Piecewise Linear Time Series Analysis," Working Paper Series in Economics and Finance 393, Stockholm School of Economics.
  11. Kapetanios, G., 1999. "Threshold Models for Trended Time Series," Cambridge Working Papers in Economics 9905, Faculty of Economics, University of Cambridge. [Downloadable!]
  12. González, Andrés & Teräsvirta, Timo & van Dijk, Dick, 2005. "Panel Smooth Transition Regression Models," Working Paper Series in Economics and Finance 604, Stockholm School of Economics. [Downloadable!]
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  13. repec:cup:etheor:v:13:y:1997:i:3:p:315-52 is not listed on IDEAS
  14. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22. [Downloadable!]
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  15. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
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  16. George Kapetanios, 2003. "Threshold models for trended time series," Empirical Economics, Springer, vol. 28(4), pages 687-707, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Strikholm, Birgit, 2006. "Determining the number of breaks in a piecewise linear regression model," Working Paper Series in Economics and Finance 648, Stockholm School of Economics. [Downloadable!]
  2. Matteo Modena, 2008. "The Term Structure and the Expectations Hypothesis: a Threshold Model," Working Papers 2008_36, Department of Economics, University of Glasgow. [Downloadable!]
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