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

  • Strikholm, Birgit


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

  • Teräsvirta, Timo


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

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.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 578.

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Length: 28 pages
Date of creation: 11 Jan 2005
Date of revision: 11 Feb 2005
Publication status: Published in Econometrics Journal, 2006, pages 472-491.
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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  1. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(03), pages 315-352, June.
  2. Hansen,B.E., 1999. "Testing for linearity," Working papers 7, Wisconsin Madison - Social Systems.
  3. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  4. George Kapetanios, 2003. "Threshold models for trended time series," Empirical Economics, Springer, vol. 28(4), pages 687-707, November.
  5. Bruce E. Hansen & Mehmet Caner, 1997. "Threshold Autoregressions with a Unit Root," Boston College Working Papers in Economics 381, Boston College Department of Economics.
  6. Russell Davidson & James MacKinnon, 2000. "Bootstrap tests: how many bootstraps?," Econometric Reviews, Taylor & Francis Journals, vol. 19(1), pages 55-68.
  7. Hansen, Bruce E, 1996. "Inference When a Nuisance Parameter Is Not Identified under the Null Hypothesis," Econometrica, Econometric Society, vol. 64(2), pages 413-30, March.
  8. Gary Koop & Simon M. Potter, 1998. "Dynamic asymmetries in US unemployment," ESE Discussion Papers 15, Edinburgh School of Economics, University of Edinburgh.
  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. Eitrheim, Øyvind & Teräsvirta, Timo, 1995. "Testing the Adequacy of Smooth Transition Autoregressive Models," SSE/EFI Working Paper Series in Economics and Finance 56, Stockholm School of Economics.
  11. Kapetanios, G., 1999. "Threshold Models for Trended Time Series," Cambridge Working Papers in Economics 9905, Faculty of Economics, University of Cambridge.
  12. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
  13. Stephen Goldfeld & Richard Quandt, 1973. "The Estimation of Structural Shifts by Switching Regressions," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 2, number 4, pages 475-485 National Bureau of Economic Research, Inc.
  14. Andres Gonzalez & Timo Terasvirta & Dick van Dijk, 2005. "Panel Smooth Transition Regression Models," Research Paper Series 165, Quantitative Finance Research Centre, University of Technology, Sydney.
  15. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Universite de Montreal, Departement de sciences economiques.
  16. Medeiros, Marcelo & Veiga, Alvaro & Resende, Mauricio, 2000. "A Combinatorial Approach to Piecewise Linear Time Series Analysis," SSE/EFI Working Paper Series in Economics and Finance 393, Stockholm School of Economics.
  17. repec:cup:etheor:v:13:y:1997:i:3:p:315-52 is not listed on IDEAS
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