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A sequential procedure for determining the number of regimes in a threshold autoregressive model

  • Birgit Strikholm
  • Timo Ter�svirta

In this paper, we propose a sequential method for determining the number of regimes in threshold autoregressive models. The proposed method relies on the superconsistency of sequential threshold estimates and uses general linearity tests to determine the number of thresholds. A simulation study is performed in order to find out the finite-sample properties of our procedure and to compare it with two other procedures available in the literature. We find that our method works reasonably well for both single and multiple threshold models. Copyright Royal Economic Society 2006

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Article provided by Royal Economic Society in its journal Econometrics Journal.

Volume (Year): 9 (2006)
Issue (Month): 3 (November)
Pages: 472-491

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Handle: RePEc:ect:emjrnl:v:9:y:2006:i:3:p:472-491
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  1. Mehmet Caner & Bruce E. Hansen, 2001. "Threshold Autoregression with a Unit Root," Econometrica, Econometric Society, vol. 69(6), pages 1555-1596, November.
  2. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
  3. Russell Davidson & James G. MacKinnon, 2001. "Bootstrap Tests: How Many Bootstraps?," Working Papers 1036, Queen's University, Department of Economics.
  4. Eitrheim, Oyvind & Terasvirta, Timo, 1996. "Testing the adequacy of smooth transition autoregressive models," Journal of Econometrics, Elsevier, vol. 74(1), pages 59-75, September.
  5. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  6. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  7. George Kapetanios, 2003. "Threshold models for trended time series," Empirical Economics, Springer, vol. 28(4), pages 687-707, November.
  8. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
  9. Hansen,B.E., 1999. "Testing for linearity," Working papers 7, Wisconsin Madison - Social Systems.
  10. Wooldridge, Jeffrey M., 1990. "A Unified Approach to Robust, Regression-Based Specification Tests," Econometric Theory, Cambridge University Press, vol. 6(01), pages 17-43, March.
  11. Gonzalo, Jesus & Pitarakis, Jean-Yves, 2002. "Estimation and model selection based inference in single and multiple threshold models," Journal of Econometrics, Elsevier, vol. 110(2), pages 319-352, October.
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