IDEAS home Printed from https://ideas.repec.org/a/bpj/sndecm/v30y2026i3p511-532n1001.html

Panel Smooth Transition Model with Covariate-Dependent Thresholds and its Application to the Nexus between Investment and Cash Flow

Author

Listed:
  • Yang Lixiong

    (School of Management, 12426 Lanzhou University , 222 South Tianshui Road, Lanzhou, 730000, China)

  • Xie Yanli

    (School of Management, 12426 Lanzhou University , Lanzhou, 730000, China)

  • Yao Liangyan

    (School of Management, 12426 Lanzhou University , Lanzhou, 730000, China)

Abstract

This paper introduces a panel smooth transition model with a covariate-dependent threshold (PSTCT). To overcome the difficulty in estimating threshold parameters of covariate-dependent thresholds, we develop a new algorithm based on the within-group transformation and simulated annealing (SA) technique. We also suggest test statistics for threshold effect, threshold constancy and cross-section dependency in the proposed model. A variable selection procedure is suggested to choose the covariates that affect the threshold. An extension to the setting with multiple regimes is also discussed. Monte Carlo simulations are conducted to investigate the finite sample properties of the proposed estimation and testing procedures. The model is illustrated by revisiting the relationship between firms’ investment and cash flow using the dataset of González, A., T. Teräsvirta, D. van Dijk, and Y. Yang. 2017. “Panel Smooth Transition Regression Models.” CREATES Research Paper. Comparing the proposed model with PSTR model of González, A., T. Teräsvirta, D. van Dijk, and Y. Yang. 2017. “Panel Smooth Transition Regression Models.” CREATES Research Paper, we find different empirical results after incorporating the covariate-dependent thresholds setting, highlighting the importance of splitting the sample based on a number of indicator variables in the cash flow/investment relationship.

Suggested Citation

  • Yang Lixiong & Xie Yanli & Yao Liangyan, 2026. "Panel Smooth Transition Model with Covariate-Dependent Thresholds and its Application to the Nexus between Investment and Cash Flow," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 30(3), pages 511-532.
    • Handle: RePEc:bpj:sndecm:v:30:y:2026:i:3:p:511-532:n:1001
    DOI: 10.1515/snde-2024-0029
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/snde-2024-0029
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/snde-2024-0029?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:sndecm:v:30:y:2026:i:3:p:511-532:n:1001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyterbrill.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.