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Theory and Applications of TAR Model with Two Threshold Variables


  • Chen, Haiqiang
  • Chong, Terence Tai Leung
  • Bai, Jushan


A growing body of threshold models has been developed over the past two decades to capture the nonlinear movement of financial time series. Most of these models, however, contain a single threshold variable only. In many empirical applications, models with two or more threshold variables are needed. This paper develops a new threshold autoregressive model which contains two threshold variables. A likelihood ratio test is proposed to determine the number of regimes in the model. The finite-sample performance of the estimators is evaluated and an empirical application is provided.

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  • Chen, Haiqiang & Chong, Terence Tai Leung & Bai, Jushan, 2012. "Theory and Applications of TAR Model with Two Threshold Variables," MPRA Paper 54527, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:54527

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    References listed on IDEAS

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    4. Seo, Myung Hwan & Shin, Yongcheol, 2016. "Dynamic panels with threshold effect and endogeneity," Journal of Econometrics, Elsevier, vol. 195(2), pages 169-186.
    5. Chong, Terence Tai Leung & Chen, Haiqiang & Wong, Tsz Nga & Yan, Isabel K., 2015. "Estimation and Inference of Threshold Regression Models with Measurement Errors," MPRA Paper 68457, University Library of Munich, Germany.
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    8. Chong, Terence Tai Leung & Yan, Isabel K., 2014. "Estimating and Testing Threshold Regression Models with Multiple Threshold Variables," MPRA Paper 54732, University Library of Munich, Germany.
    9. Chong, Terence Tai-Leung & Lam, Tau-Hing & Yan, Isabel Kit-Ming, 2012. "Is the Chinese stock market really inefficient?," China Economic Review, Elsevier, vol. 23(1), pages 122-137.
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    12. Ma, Tao & Zhou, Zhou & Abdulhai, Baher, 2015. "Nonlinear multivariate time–space threshold vector error correction model for short term traffic state prediction," Transportation Research Part B: Methodological, Elsevier, vol. 76(C), pages 27-47.

    More about this item


    Threshold Autoregressive Model; Misspecification; Likelihood Ratio Test; Bootstrapping.;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes


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