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THRET: Threshold Regression with Endogenous Threshold Variables

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  • Andros Kourtellos

    ()
    (University of Cyprus, Cyprus)

  • Chih Ming Tan

    ()
    (Tufts University, USA)

  • Thanasis Stengos

    ()
    (University of Guelph, Canada and The Rimini Centre for Economic Analysis, Rimini, Italy)

Abstract

This paper extends the simple threshold regression framework of Hansen (2000) and Caner and Hansen (2004) to allow for endogeneity of the threshold variable. We develop a concentrated two-stage least squares (C2SLS) estimator of the threshold parameter that is based on an inverse Mills ratio bias correction. Our method also allows for the endogeneity of the slope variables. We show that our estimator is consistent and investigate its performance using a Monte Carlo simulation that indicates the applicability of the method in finite samples. We also illustrate its usefulness with an empirical example from economic growth. JEL Classifications: C13, C51

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Bibliographic Info

Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 05-08.

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Date of creation: Jan 2008
Date of revision: Jan 2008
Handle: RePEc:rim:rimwps:05-08

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References

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  1. William Easterly & Ross Levine, 2002. "Tropics, Germs, and Crops: How Endowments Influence Economic Development," NBER Working Papers 9106, National Bureau of Economic Research, Inc.
  2. Durlauf, Steven N & Johnson, Paul A, 1995. "Multiple Regimes and Cross-Country Growth Behaviour," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 365-84, Oct.-Dec..
  3. Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
  4. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  5. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  6. Caner, Mehmet & Hansen, Bruce E., 2004. "Instrumental Variable Estimation Of A Threshold Model," Econometric Theory, Cambridge University Press, vol. 20(05), pages 813-843, October.
  7. Mamuneas, T.P. & Savvides, A. & Stengos, T., 2002. "Economic Development and the Return to Human Capital: A Smooth Coefficient Semiparametric Approach," Working Papers 2002-14, University of Guelph, Department of Economics and Finance.
  8. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  9. Oliver Linton & Myunghwan Seo, 2005. "A smoothed least squares estimator for threshold regression models," LSE Research Online Documents on Economics 4434, London School of Economics and Political Science, LSE Library.
  10. Jesús Gonzalo & Michael Wolf, 2001. "Subsampling inference in threshold autoregressive models," Economics Working Papers 573, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Durlauf, Steven N. & Kourtellos, Andros & Minkin, Artur, 2001. "The local Solow growth model," European Economic Review, Elsevier, vol. 45(4-6), pages 928-940, May.
  12. Chih Ming Tan, 2005. "No One True Path: Uncovering the Interplay between Geography, Institutions, and Fractionalization in Economic Development," Discussion Papers Series, Department of Economics, Tufts University 0512, Department of Economics, Tufts University.
  13. Jeffrey D. Sachs, 2003. "Institutions Don't Rule: Direct Effects of Geography on Per Capita Income," NBER Working Papers 9490, National Bureau of Economic Research, Inc.
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Cited by:
  1. Thanassis Kazanas & Elias Tzavalis, 2011. "Unveiling the monetary policy rule in euro area," Working Papers 130, Bank of Greece.
  2. Markus Eberhardt & Francis Teal, 2009. "Econometrics for Grumblers: A New Look at the Literature on Cross-Country Growth Empirics," CSAE Working Paper Series 2009-07, Centre for the Study of African Economies, University of Oxford.
  3. George Kapetanios & James Mitchell & Yongcheol Shin, 2010. "A Nonlinear Panel Model of Cross-sectional Dependence," Working Papers 673, Queen Mary, University of London, School of Economics and Finance.
  4. Bose, Niloy & Murshid, Antu Panini & Wurm, Martin A., 2012. "The Growth Effects of Property Rights: The Role of Finance," World Development, Elsevier, vol. 40(9), pages 1784-1797.
  5. Lee, Hsiu-Yun, 2011. "Nonlinear exchange rate dynamics under stochastic official intervention," Economic Modelling, Elsevier, vol. 28(4), pages 1510-1518, July.

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