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Determining the Number of Regimes in a Threshold Autoregressive Model Using Smooth Transition Autoregressions

Author

Listed:
  • Strikholm, Birgit

    (Dept. of Economic Statistics, Stockholm School of Economics)

  • Teräsvirta, Timo

    (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

In this paper we propose a method for determining the number of regimes in threshold autoregressive models using smooth transition autoregression as a tool. As the smooth transition model is just an approximation to the threshold autoregressive one, no asymptotic properties are claimed for the proposed method. Tests available for testing the adequacy of a smooth transition autoregressive model are applied sequentially to determine the number of regimes. A simulation study is performed in order to find out the finite-sample properties of the procedure and to compare it with two other procedures available in the literature. We find that our method works reasonably well for both single and multiple threshold models.

Suggested Citation

  • Strikholm, Birgit & Teräsvirta, Timo, 2005. "Determining the Number of Regimes in a Threshold Autoregressive Model Using Smooth Transition Autoregressions," SSE/EFI Working Paper Series in Economics and Finance 578, Stockholm School of Economics, revised 11 Feb 2005.
    • Handle: RePEc:hhs:hastef:0578
    Note: This is an early version of the paper published under a different title in Econometrics Journal 9, 472-491 (2006).
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    Cited by:

    1. Galvão, Ana Beatriz, 2013. "Changes in predictive ability with mixed frequency data," International Journal of Forecasting, Elsevier, vol. 29(3), pages 395-410.
    2. Chen, Yu-Lun & Yang, J. Jimmy, 2021. "Trader positions in VIX futures," Journal of Empirical Finance, Elsevier, vol. 61(C), pages 1-17.
    3. Birgit Strikholm & Timo Teräsvirta, 2006. "A sequential procedure for determining the number of regimes in a threshold autoregressive model," Econometrics Journal, Royal Economic Society, vol. 9(3), pages 472-491, November.
    4. Mohammad Mirbagherijam, 2014. "Thresholds Effect of Money Growth on Inflation in Iran," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(9), pages 319-329, September.
    5. Galvão, Ana Beatriz, 2013. "Changes in predictive ability with mixed frequency data," International Journal of Forecasting, Elsevier, vol. 29(3), pages 395-410.
    6. Strikholm, Birgit, 2006. "Determining the number of breaks in a piecewise linear regression model," SSE/EFI Working Paper Series in Economics and Finance 648, Stockholm School of Economics.
    7. Emilio Zanetti Chini, 2013. "Generalizing smooth transition autoregressions," CREATES Research Papers 2013-32, Department of Economics and Business Economics, Aarhus University.
    8. Ana Beatriz Galvão & Michael Artis & Massimiliano Marcellino, 2007. "The transmission mechanism in a changing world," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(1), pages 39-61.
    9. Jens‐Peter Loy & Dieter Pennerstorfer & Daniela Rroshi & Christoph Weiss & Biliana Yontcheva, 2022. "Consumer Information and Price Transmission: Empirical Evidence," Journal of Industrial Economics, Wiley Blackwell, vol. 70(3), pages 631-683, September.
    10. Lazzarini, S. G. & Madalozzo, R. C & Artes, R. & Siqueira, J. O., 2004. "Measuring trust: An experiment in Brazil," Insper Working Papers wpe_42, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
    11. Matteo Modena, 2008. "The Term Structure and the Expectations Hypothesis: a Threshold Model," Working Papers 2008_36, Business School - Economics, University of Glasgow.
    12. Chang, Ya-Kai & Chen, Yu-Lun & Chou, Robin K. & Gau, Yin-Feng, 2013. "The effectiveness of position limits: Evidence from the foreign exchange futures markets," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4501-4509.
    13. Terasvirta, Timo, 2006. "Forecasting economic variables with nonlinear models," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 1, chapter 8, pages 413-457, Elsevier.
    14. Shahbaba Babak, 2009. "Discovering Hidden Structures Using Mixture Models: Application to Nonlinear Time Series Processes," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 13(2), pages 1-21, May.
    15. Bilgili, Faik, 2012. "Linear and nonlinear TAR panel unit root analyses for solid biomass energy supply of European countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(9), pages 6775-6781.
    16. Ana Beatriz C. Galvao, 2006. "Structural break threshold VARs for predicting US recessions using the spread," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(4), pages 463-487.
    17. Ana Beatriz C. Galvão, 2006. "Structural break threshold VARs for predicting US recessions using the spread," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(4), pages 463-487, May.
    18. Jean-Marc Le Caillec, 2021. "Threshold autoregressive model blind identification based on array clustering," Post-Print hal-03210735, HAL.

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    More about this item

    Keywords

    Model specification; model selection criterion; nonlinear modelling; sequential testing; switching regression;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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