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Panel Smooth Transition Regression Models

Author

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  • González, Andrés

    (Banco de la Republica)

  • Teräsvirta, Timo

    (CREATES, Aarhus University; C.A.S.E, Humboldt-Universität zu Berlin)

  • van Dijk, Dick

    (Econometric Institute, Erasmus University Rotterdam)

  • Yang, Yukai

    (Uppsala University)

Abstract

We introduce the panel smooth transition regression model. This new model is intended for characterizing heterogeneous panels, allowing the regression coefficients to vary both across individuals and over time. Specifically, heterogeneity is allowed for by assuming that these coefficients are bounded continuous functions of an observable variable and fluctuate between a limited number of "extreme regimes". The model can be viewed as a generalization of the threshold panel model of Hansen (1999). We extend the modelling strategy originally designed for univariate smooth transition regression models to the panel context. The strategy consists of model specification based on homogeneity tests, parameter estimation, and model evaluation, including tests of parameter constancy and no remaining heterogeneity. The model is applied to describing firms' investment decisions in the presence of capital market imperfections.

Suggested Citation

  • González, Andrés & Teräsvirta, Timo & van Dijk, Dick & Yang, Yukai, 2005. "Panel Smooth Transition Regression Models," SSE/EFI Working Paper Series in Economics and Finance 604, Stockholm School of Economics, revised 11 Oct 2017.
    • Handle: RePEc:hhs:hastef:0604
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    More about this item

    Keywords

    financial constraints; heterogeneous panel; investment; misspecification test; nonlinear modelling of panel data; smooth transition model.;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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