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A simple specification procedure for the transition function in persistent nonlinear time series models

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  • Kaufmann, Hendrik
  • Kruse, Robinson
  • Sibbertsen, Philipp

Abstract

A simple procedure for the specification of the transition function describing the regime switch in nonlinear autoregressive models is proposed. This procedure is based on auxiliary regressions of unit root tests and is applicable to a variety of transition functions. In contrast to other procedures, complicated and computer-intense estimation of the candidate models is not necessary. Our approach entirely relies on OLS estimation of auxiliary regressions instead. We use standard information criteria for the selection of the unknown transition function. Our Monte Carlo simulations reveal that the approach works well in practice. Empirical applications to the S&P500 price-earnings ratio and the US interest spread highlight the merits of our suggested procedure.

Suggested Citation

  • Kaufmann, Hendrik & Kruse, Robinson & Sibbertsen, Philipp, 2012. "A simple specification procedure for the transition function in persistent nonlinear time series models," Hannover Economic Papers (HEP) dp-500, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  • Handle: RePEc:han:dpaper:dp-500
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    File URL: http://diskussionspapiere.wiwi.uni-hannover.de/pdf_bib/dp-500.pdf
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    Cited by:

    1. He, HongWen & Zhang, YongZhi & Xiong, Rui & Wang, Chun, 2015. "A novel Gaussian model based battery state estimation approach: State-of-Energy," Applied Energy, Elsevier, vol. 151(C), pages 41-48.
    2. Grote, Claudia & Sibbertsen, Philipp, 2013. "Testing for Cointegration in a Double-LSTR Framework," Hannover Economic Papers (HEP) dp-514, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.

    More about this item

    Keywords

    Nonlinearity; Smooth transition; Threshold model; Model selection; Unit root;

    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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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