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Panel Smooth Transition Regression Models

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  • González, Andrés

    ()
    (Dept. of Economic Statistics, Stockholm School of Economics)

  • Teräsvirta, Timo

    ()
    (Dept. of Economic Statistics, Stockholm School of Economics)

  • van Dijk, Dick

    ()
    (Econometric Institute, Erasmus University Rotterdam)

Abstract

We develop a non-dynamic panel smooth transition regression model with fixed individual effects. The model is useful for describing heterogenous panels, with regression coefficients that vary across individuals and over time. Heterogeneity is allowed for by assuming that these coefficients are continuous functions of an observable variable through a bounded function of this variable and fluctuate between a limited number (often two) of “extreme regimes”. The model can be viewed as a generalization of the threshold panel model of Hansen (1999). We extend the modelling strategy for univariate smooth transition regression models to the panel context. This comprises of model specification based on homogeneity tests, parameter estimation, and diagnostic checking, including tests for parameter constancy and no remaining nonlinearity. The new model is applied to describe firms' investment decisions in the presence of capital market imperfections.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 604.

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Length: 33 pages
Date of creation: 17 Aug 2005
Date of revision:
Handle: RePEc:hhs:hastef:0604

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Keywords: financial constraints; heterogeneous panel; invesatment; misspecification test; nonlinear modelling panel data; smooth transition model;

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