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Asymmetric and Common Abssorbtion of Shocks in Nonlinear Autoregressive Models

  • Boswijk, H.P.

    ()

    (Universiteit van Amsterdam)

  • van Dijk, D.
  • Franses, P.H.

A key feature of many nonlinear time series models is that they allow for the possibility that the model structure experiences changes, depending on for example the state of the economy or of the financial market. A common property of these models is that it generally is not possible to fully understand the structure of the model by considering the estimated values of the model parameters only. Put differently, it often is difficult to interpret a specific nonlinear model. To shed light on the characteristics of a nonlinear model it can then be useful to consider the effect of shocks on the future patterns of a time series variable. Most interest in such impulse response analysis has concentrated on measuring the persistence of shocks, or the magnitude of the (ultimate) effect of shocks. Interestingly, far less attention has been given to measuring the speed at which this final effect is attained, that is, how fast shocks are 'absorbed' by a time series. In this paper we develop and implement a framework that can be used to assess the absorption rate of shocks in nonlinear models. The current-depth-of-recession model of Beaudry and Koop (1993), the floor-and-ceiling model of Pesaran and Potter (1997) and a multivariate STAR model are used to illustrate the various concepts.

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Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 00-10.

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Date of creation: 2000
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Handle: RePEc:ams:ndfwpp:00-10
Contact details of provider: Postal: Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands
Phone: + 31 20 525 52 58
Fax: + 31 20 525 52 83
Web page: http://www.fee.uva.nl/cendef/
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  1. Chung-Ming Kuan, 2006. "Artificial Neural Networks," IEAS Working Paper : academic research 06-A010, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  2. Kuan, Chung-Ming & Liu, Tung, 1995. "Forecasting Exchange Rates Using Feedforward and Recurrent Neural Networks," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(4), pages 347-64, Oct.-Dec..
  3. Pesaran, H.M. & Potter, S.M., 1995. "A Floor and Ceiling Model of U.S. Output," Cambridge Working Papers in Economics 9407, Faculty of Economics, University of Cambridge.
  4. Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143.
  5. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  6. Simon M. Potter, 1999. "Nonlinear impulse response functions," Staff Reports 65, Federal Reserve Bank of New York.
  7. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
  8. Potter, Simon M, 1995. "A Nonlinear Approach to US GNP," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 10(2), pages 109-25, April-Jun.
  9. Lee, Kevin C. & Pesaran, M. Hashem, 1993. "Persistence profiles and business cycle fluctuations in a disaggregated model of U.K. output growth," Ricerche Economiche, Elsevier, vol. 47(3), pages 293-322, September.
  10. Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
  11. Anderson, Heather M. & Vahid, Farshid, 1998. "Testing multiple equation systems for common nonlinear components," Journal of Econometrics, Elsevier, vol. 84(1), pages 1-36, May.
  12. Koop, Gary, 1996. "Parameter uncertainty and impulse response analysis," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 135-149.
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