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Panel Smooth Transition Regression Models

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Author Info
Andres Gonzalez (Banco de la Republica de Colombia, Stockholm School of Economics)
Timo Terasvirta (Department of Economic Statistics, Stockholm School of Economics)
Dick van Dijk (Econometric Institute, Erasmus University Rotterdam)

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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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Paper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 165.

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Length: 35
Date of creation: 01 Aug 2005
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Handle: RePEc:uts:rpaper:165

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Related research
Keywords: financial constraints; heterogenous panel; investment; misspecification test; nonlinear modelling panel data; smooth transition models;

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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References listed on IDEAS
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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. Rao, B. Bhaskara & Tamazian, Artur & Kumar, Saten, 2009. "Systems GMM estimates of the Feldstein-Horioka puzzle for the OECD countries and tests for structural breaks," MPRA Paper 15312, University Library of Munich, Germany. [Downloadable!]
  2. González, Andrés & Teräsvirta, Timo, 2005. "Simulation-based finite-sample linearity test against smooth transition models," Working Paper Series in Economics and Finance 603, Stockholm School of Economics.
    Other versions:
  3. Joshua Aizenman & Nan Geng, 2009. "Adjustment of State Owned and Foreign-Funded Enterprises in China to Economic Reforms,1980s-2007: a logistic smooth transition regression (LSTR) approach," NBER Working Papers 15274, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Strikholm, Birgit & Teräsvirta, Timo, 2005. "Determining the Number of Regimes in a Threshold Autoregressive Model Using Smooth Transition Autoregressions," Working Paper Series in Economics and Finance 578, Stockholm School of Economics, revised 11 Feb 2005. [Downloadable!]
  5. Galimberti, Jaqueson K., 2009. "Conditioned Export-Led Growth Hypothesis: A Panel Threshold Regressions Approach," MPRA Paper 13417, University Library of Munich, Germany. [Downloadable!]
  6. He, Changli & Sandberg, Rickard, 2005. "Inference for Unit Roots in a Panel Smooth Transition Autoregressive Model where the Time Dimension is Fixed," Working Paper Series in Economics and Finance 581, Stockholm School of Economics, revised 18 Feb 2005. [Downloadable!]
  7. Delatte, Anne-Laure & Fouquau, Julien, 2009. "The Determinants of International Reserves in the Emerging Countries: a Non-Linear Approach," MPRA Paper 16311, University Library of Munich, Germany. [Downloadable!]
  8. Neil Foster, 2006. "Exports, growth and threshold effects in Africa," The Journal of Development Studies, Taylor and Francis Journals, vol. 42(6), pages 1056-1074, August. [Downloadable!] (restricted)
  9. Chakroun, Mohamed, 2009. "Health care expenditure and GDP: An international panel smooth transition approach," MPRA Paper 14322, University Library of Munich, Germany. [Downloadable!]
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