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Is There a Jump in the Transition?

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  • Young-Joo Kim
  • Myung Hwan Seo

Abstract

This article develops a statistical test for the presence of a jump in an otherwise smooth transition process. In this testing, the null model is a threshold regression and the alternative model is a smooth transition model. We propose a quasi-Gaussian likelihood ratio statistic and provide its asymptotic distribution, which is defined as the maximum of a two parameter Gaussian process with a nonzero bias term. Asymptotic critical values can be tabulated and depend on the transition function employed. A simulation method to compute empirical critical values is also developed. Finite-sample performance of the test is assessed via Monte Carlo simulations. The test is applied to investigate the dynamics of racial segregation within cities across the United States.

Suggested Citation

  • Young-Joo Kim & Myung Hwan Seo, 2017. "Is There a Jump in the Transition?," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 35(2), pages 241-249, April.
  • Handle: RePEc:taf:jnlbes:v:35:y:2017:i:2:p:241-249
    DOI: 10.1080/07350015.2016.1164055
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    References listed on IDEAS

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