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Time-Varying Smooth Transition Autoregressive Models

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  • Lundbergh, Stefan
  • Terasvirta, Timo
  • van Dijk, Dick

Abstract

Nonlinear regime-switching behavior and structural change are often perceived as competing alternatives to linearity. In this article we study the so-called time-varying smooth transition autoregressive (TV-STAR) model, which can be used both for describing simultaneous nonlinearity and structural change and for distinguishing between these features. Two modeling strategies for empirical specification of TV-STAR models are developed. Monte Carlo simulations show that neither of the two strategies dominates the other. A specific-to-general-to-specific procedure is best suited for obtaining a first impression of the importance of nonlinearity and/or structural change for a particular time series. A specific-to-general procedure is most useful in careful specification of a model with nonlinear and/or time-varying properties. An empirical application to a large dataset of U.S. macroeconomic time series illustrates the relative merits of both modeling strategies.

Suggested Citation

  • Lundbergh, Stefan & Terasvirta, Timo & van Dijk, Dick, 2003. "Time-Varying Smooth Transition Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(1), pages 104-121, January.
  • Handle: RePEc:bes:jnlbes:v:21:y:2003:i:1:p:104-21
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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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