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Testing nonlinearity: Decision rules for selecting between logistic and exponential STAR models

  • Álvaro Escribano

    ()

    (Department of Economics, Universidad Carlos III de Madrid, c/ Madrid 126, Madrid 28903, Spain Department of Economics, University of California, One Shields Avenue, Davis, CA 95616-8578, USA)

  • Oscar Jordá

    ()

    (Department of Economics, Universidad Carlos III de Madrid, c/ Madrid 126, Madrid 28903, Spain Department of Economics, University of California, One Shields Avenue, Davis, CA 95616-8578, USA)

A new LM specification procedure to choose between Logistic and Exponential Smooth Transition Autoregressive (STAR) models is introduced. The new decision rule has better properties than those previously available in the literature when the model is ESTAR and similar properties when the model is LSTAR. A simple natural extension of the usual LM-test for linearity is introduced and evaluated in terms of power. Monte-Carlo simulations and empirical evidence are provided in support of our claims.

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Article provided by Springer & Spanish Economic Association in its journal Spanish Economic Review.

Volume (Year): 3 (2001)
Issue (Month): 3 ()
Pages: 193-209

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Handle: RePEc:spr:specre:v:3:y:2001:i:3:p:193-209
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  1. Pesaran, M. Hashem & Potter, Simon M., 1997. "A floor and ceiling model of US output," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 661-695, May.
  2. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March.
  3. 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 S119-36, Suppl. De.
  4. Oscar Jorda & Alvaro Escribano, 2003. "Improved Testing And Specification Of Smooth Transition Regression Models," Working Papers 9726, University of California, Davis, Department of Economics.
  5. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  6. Granger, Clive W. J. & Terasvirta, Timo, 1993. "Modelling Non-Linear Economic Relationships," OUP Catalogue, Oxford University Press, number 9780198773207, December.
  7. Rothman, Philip, 1988. "Further Evidence On The Asymmetric Behavior Of Unemployment Rates Over The Business Cycle," Working Papers 88-23, C.V. Starr Center for Applied Economics, New York University.
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