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Testing for linearity

  • Hansen,B.E.

    (University of Wisconsin-Madison, Social Systems Research Institute)

The problem of testing for linearity and the number of regimes in the context of self-exciting threshold autoregressive (SETAR) models is reviewed. We describe least-squares methods of estimation and inference. The primary complication is that the testing problem is non-standard, due to the presence of parameters which are only defined under the alternative, so the asymptotic distribution of the test statistics is non-standard. Simulation methods to calculate asymptotic and bootstrap distributions are presented. As the sampling distributions are quite sensitive to conditional heteroskedasticity in the error, careful modeling of the conditional variance is necessary for accurate inference on the conditional mean. We illustrate these methods with two applications--annual sunspot means and monthly U.S. industrial production. We find that annual sunspots and monthly industrial production are SETAR(2) processes. Copyright 1999 by Blackwell Publishers Ltd

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File URL: http://www.ssc.wisc.edu/~bhansen/papers/jes_99.pdf
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Paper provided by Wisconsin Madison - Social Systems in its series Working papers with number 7.

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Date of creation: 1999
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Handle: RePEc:att:wimass:19997
Contact details of provider: Postal: UNIVERSITY OF WISCONSIN MADISON, SOCIAL SYSTEMS RESEARCH INSTITUTE(S.S.R.I.), MADISON WISCONSIN 53706 U.S.A.

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  1. Diebold, Francis X. & Chen, Celia, 1996. "Testing structural stability with endogenous breakpoint A size comparison of analytic and bootstrap procedures," Journal of Econometrics, Elsevier, vol. 70(1), pages 221-241, January.
  2. HÄRDLE, Wolfgang, 1992. "Applied nonparametric methods," CORE Discussion Papers 1992003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Jushan Bai & Pierre Perron, 1998. "Estimating and Testing Linear Models with Multiple Structural Changes," Econometrica, Econometric Society, vol. 66(1), pages 47-78, January.
  4. 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.
  5. Galbraith, John W, 1996. "Credit Rationing and Threshold Effects in the Relation between Money and Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 419-29, July-Aug..
  6. 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.
  7. repec:cup:etheor:v:13:y:1997:i:3:p:315-52 is not listed on IDEAS
  8. Bruce E. Hansen, 1998. "Testing for Structural Change in Conditional Models," Boston College Working Papers in Economics 310., Boston College Department of Economics.
  9. Bruce E. Hansen, 1997. "Threshold effects in non-dynamic panels: Estimation, testing and inference," Boston College Working Papers in Economics 365, Boston College Department of Economics.
  10. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
  11. Robert B. Davies, 2002. "Hypothesis testing when a nuisance parameter is present only under the alternative: Linear model case," Biometrika, Biometrika Trust, vol. 89(2), pages 484-489, June.
  12. Hansen, B.E., 1991. "Inference when a Nuisance Parameter is Not Identified Under the Null Hypothesis," RCER Working Papers 296, University of Rochester - Center for Economic Research (RCER).
  13. Hansen, Bruce E, 2002. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 45-59, January.
  14. Mehmet Caner & Bruce E. Hansen, 1998. "Threshold Autoregressions with a Near Unit Root," Departmental Working Papers 9821, Bilkent University, Department of Economics.
  15. 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.
  16. Oliver LINTON, . "Applied nonparametric methods," Statistic und Oekonometrie 9312, Humboldt Universitaet Berlin.
  17. Burgess, S M, 1992. "Nonlinear Dynamics in a Structural Model of Employment," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S101-18, Suppl. De.
  18. Cao, C Q & Tsay, R S, 1992. "Nonlinear Time-Series Analysis of Stock Volatilities," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(S), pages S165-85, Suppl. De.
  19. Andrews, Donald W K & Ploberger, Werner, 1994. "Optimal Tests When a Nuisance Parameter Is Present Only under the Alternative," Econometrica, Econometric Society, vol. 62(6), pages 1383-1414, November.
  20. Koop, Gary & Potter, Simon M., 1998. "Bayes factors and nonlinearity: Evidence from economic time series1," Journal of Econometrics, Elsevier, vol. 88(2), pages 251-281, November.
  21. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
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  23. Seo, Byeongseon, 1998. "Tests For Structural Change In Cointegrated Systems," Econometric Theory, Cambridge University Press, vol. 14(02), pages 222-259, April.
  24. Stinchcombe, Maxwell B. & White, Halbert, 1998. "Consistent Specification Testing With Nuisance Parameters Present Only Under The Alternative," Econometric Theory, Cambridge University Press, vol. 14(03), pages 295-325, June.
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