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The Effects of Small Sample Bias in Threshold Autoregressive Models

  • Yamin Ahmad

    ()

    (Department of Economics, University of Wisconsin - Whitewater)

This paper investigates the properties of a class of models which incorporate nonlinear dynamics, known as Threshold Autoregressive (TAR) models. Simulations show that within the context of the real exchange rate literature, a threshold model of exchange rates exhibits significant small sample bias even with long time series data. The results of this paper has severe implications for the properties of estimated coefficients within TAR models.

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File URL: http://www.uww.edu/documents/colleges/cobe/economics/wpapers/07_01_Ahmad.pdf
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Paper provided by UW-Whitewater, Department of Economics in its series Working Papers with number 07-01.

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Length: 15 pages
Date of creation: May 2007
Date of revision: Jun 2007
Publication status: published in Economics Letters, August 2008, Vol 101, pp 6 - 8
Handle: RePEc:uww:wpaper:07-01
Contact details of provider: Postal: Whitewater, WI 53190-1750
Phone: (414) 472-1361
Web page: http://www.uww.edu/cobe/economics/main.html

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  1. Kilian, Lutz & Taylor, Mark P., 2003. "Why is it so difficult to beat the random walk forecast of exchange rates?," Journal of International Economics, Elsevier, vol. 60(1), pages 85-107, May.
  2. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," CEPR Discussion Papers 1672, C.E.P.R. Discussion Papers.
  3. Taylor, Alan M. & Taylor, Mark P, 2004. "The Purchasing Power Parity Debate," CEPR Discussion Papers 4495, C.E.P.R. Discussion Papers.
  4. Balke, Nathan S & Fomby, Thomas B, 1997. "Threshold Cointegration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(3), pages 627-45, August.
  5. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-79, August.
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