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Multivariate contemporaneous-threshold autoregressive models

  • Dueker, Michael J.
  • Psaradakis, Zacharias
  • Sola, Martin
  • Spagnolo, Fabio

This paper proposes a contemporaneous-threshold multivariate smooth transition autoregressive (C-MSTAR) model in which the regime weights depend on the ex-ante probabilities that latent regime-specific variables exceed certain threshold values. A key feature of the model is that the transition function depends on all the parameters of the model as well as on the data. Since the mixing weights are also a function of the regime-specific noise covariance matrix, the model can account for contemporaneous regime-specific co-movements of the variables. The stability and distributional properties of the proposed model are discussed, as well as issues of estimation, testing and forecasting. The practical usefulness of the C-MSTAR model is illustrated by examining the relationship between US stock prices and interest rates.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 160 (2011)
Issue (Month): 2 (February)
Pages: 311-325

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Handle: RePEc:eee:econom:v:160:y:2011:i:2:p:311-325
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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