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Random Walk Smooth Transition Autoregressive Models

  • Heather M. Anderson
  • Chin Nam Low

    ()

This paper extends the family of smooth transition autoregressive (STAR) models by proposing a specification in which the autoregressive parameters follow random walks. The random walks in the parameters can capture structural change within a regime switching framework, but in contrast to the time varying STAR (TV-STAR) speciifcation recently introduced by Lundbergh et al (2003), structural change in our random walk STAR (RW-STAR) setting follows a stochastic process rather than a deterministic function of time. We suggest tests for RW-STAR behaviour and study the performance of RW-STARmodels in an empirical setting. The out-of sample forecasting performance of our RW-STAR models is encouraging - better than AR, LSTAR and TV-STAR specifications with respect to point forecasts and on a par with TV-STAR speciÞcations with respect to forecast density evaluations.

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File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2004/wp22-04.pdf
File Function: Revised version, May 2005
Download Restriction: no

Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 22/04.

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Length: 40 pages
Date of creation: Nov 2004
Date of revision: May 2005
Handle: RePEc:msh:ebswps:2004-22
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  1. 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.
  2. Stock, James H & Watson, Mark W, 1996. "Evidence on Structural Instability in Macroeconomic Time Series Relations," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(1), pages 11-30, January.
  3. Beaudry, Paul & Koop, Gary, 1993. "Do recessions permanently change output?," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 149-163, April.
  4. Boero, Gianna & Marrocu, Emanuela, 2003. "The Performance Of Setar Models : A Regime Conditional Evaluation Of Point, Interval And Density Forecasts," The Warwick Economics Research Paper Series (TWERPS) 663, University of Warwick, Department of Economics.
  5. Pesaran, M. Hashem & Potter, Simon M., 1997. "A floor and ceiling model of US output," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 661-695, May.
  6. Lin, Chien-Fu Jeff & Terasvirta, Timo, 1994. "Testing the constancy of regression parameters against continuous structural change," Journal of Econometrics, Elsevier, vol. 62(2), pages 211-228, June.
  7. Francis X. Diebold & Todd A. Gunther & Anthony S. Tay, . "Evaluating Density Forecasts," CARESS Working Papres 97-18, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  8. Clements, M.P. & Smith J., 1998. "Evaluating The Forecast of Densities of Linear and Non-Linear Models: Applications to Output Growth and Unemployment," The Warwick Economics Research Paper Series (TWERPS) 509, University of Warwick, Department of Economics.
  9. repec:cup:cbooks:9780521321969 is not listed on IDEAS
  10. Michael P. Clements & David F. Hendry, 2001. "Forecasting Non-Stationary Economic Time Series," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262531895, June.
  11. Anderson, Gordon, 1994. "Simple tests of distributional form," Journal of Econometrics, Elsevier, vol. 62(2), pages 265-276, June.
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