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A multi-level panel STAR model for US manufacturing sectors

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  • Dick van Dijk

    (Econometric Institute, Erasmus University Rotterdam, The Netherlands)

  • Dennis Fok

    (Econometric Institute, Erasmus University Rotterdam, The Netherlands)

  • Philip Hans Franses

    (Econometric Institute, Erasmus University Rotterdam, The Netherlands)

Abstract

We introduce a multi-level smooth transition model for a panel of time series, which can be used to examine the presence of common nonlinear business cycle features across many variables. The model is positioned in between a fully pooled model, which imposes such common features, and a fully heterogeneous model, which allows for unrestricted nonlinearity. We introduce a second-stage model linking the parameters that determine the timing of the switches between business cycle regimes to observable explanatory variables, thereby allowing for lead-lag relationships across panel members. We discuss representation, estimation by concentrated simulated maximum likelihood and inference. We illustrate our model using quarterly industrial production in 19 US manufacturing sectors, and document that there are subtle differences across sectors in leads and lags for switches between business cycle recessions and expansions. Copyright © 2005 John Wiley & Sons, Ltd.

Suggested Citation

  • Dick van Dijk & Dennis Fok & Philip Hans Franses, 2005. "A multi-level panel STAR model for US manufacturing sectors," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(6), pages 811-827.
  • Handle: RePEc:jae:japmet:v:20:y:2005:i:6:p:811-827
    DOI: 10.1002/jae.822
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    File URL: http://qed.econ.queensu.ca:80/jae/2005-v20.6/
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    References listed on IDEAS

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    1. Terasvirta, T & Anderson, H M, 1992. "Characterizing Nonlinearities in Business Cycles Using Smooth Transition Autoregressive Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages 119-136, Suppl. De.
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