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A Note on the Finite Sample Properties of the CLS Method of TAR Models

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  • Marian Vavra

    (Department of Economics, Mathematics & Statistics, Birkbeck)

Abstract

In this paper we focus on the finite sample properties of the conditional least squares (CLS) method of threshold autoregressive (TAR) parameters under the following conditions: (a) non-Gaussian model innovations; (b) two types of asymmetry (i.e. deepness and steepness) captured by TAR models. It is clearly demonstrated that the finite sample properties of the CLS method of TAR parameters significantly differ depending on the type of asymmetry. The behavior of steepness-based models is very good compared to that obtained from deepness-based models. Therefore, extreme caution must be excercised to preliminary modelling steps, such as testing the type of asymmetry before estimating TAR models in practice. A mistake in this phase of modelling can, in turn, give rise to very problematic results.

Suggested Citation

  • Marian Vavra, 2012. "A Note on the Finite Sample Properties of the CLS Method of TAR Models," Birkbeck Working Papers in Economics and Finance 1206, Birkbeck, Department of Economics, Mathematics & Statistics.
  • Handle: RePEc:bbk:bbkefp:1206
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    References listed on IDEAS

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    More about this item

    Keywords

    threshold autoregressive model; Monte Carlo method; bias; asymmetry;

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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