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An Efficient Algorithm for the Estimation of a Mixture of Switching and Threshold Regressions

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  • T. V. S. Ramamohan Rao

    (Indian Institute of Technology)

Abstract

Many switches and some thresholds occur frequently in most practical contexts of strategic decision making. Generally these two aspects have been studied separately. This study approaches the identification problem in a synthetic manner. Several combinations of objectives of decision making, with no clear combination in perspective, render it difficult to measure the dependent variable. A case in point is the concept of consumer loyalty to the products of a firm. Clearly, many independent variables have effects on an array of dependent variables.Three different methods of dealing with the unobservable dependent variable have been examined. In addition, almost all studies postulate that the switches and threshold levels satisfy a predefined probability distribution. The resulting estimates crucially depend on this assumption rather than reflect the nature of the data. By way of contrast, this study develops estimates of these changes without such an assumption. Further, suitable transformations of variables have been developed so that the non-linear regression can be converted into a simple linear regression. The case of 3MIndia was developed to illustrate the application of the proposed methods.

Suggested Citation

  • T. V. S. Ramamohan Rao, 2025. "An Efficient Algorithm for the Estimation of a Mixture of Switching and Threshold Regressions," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 23(3), pages 661-677, September.
    • Handle: RePEc:spr:jqecon:v:23:y:2025:i:3:d:10.1007_s40953-025-00449-7
    DOI: 10.1007/s40953-025-00449-7
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    JEL classification:

    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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