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    Threshold Slides

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    Threshold autoregressive (TAR) models allow movements between regimes that are governed by an observed state variable. A TAR model specifies different autoregressive processes depending on whether a state variable is above or below a threshold value. A self-exciting TAR (SETAR) model occurs when the state variable is the lagged dependent variable. There are many possible variations of the simple TAR model, including switching in some parameters, more than two regimes, different threshold variables, and alternative dynamic specifications.

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    Threshold Slides

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    optoergo
    121 views6 pages
    Threshold autoregressive (TAR) models allow movements between regimes that are governed by an observed state variable. A TAR model specifies different autoregressive processes depending on whether a state variable is above or below a threshold value. A self-exciting TAR (SETAR) model occurs when the state variable is the lagged dependent variable. There are many possible variations of the simple TAR model, including switching in some parameters, more than two regimes, different threshold variables, and alternative dynamic specifications.

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    Threshold autoregressive (TAR) models allow movements between regimes that are governed by an observed state variable. A TAR model specifies different autoregressive processes depending on whether a state variable is above or below a threshold value. A self-exciting TAR (SETAR) model occurs when the state variable is the lagged dependent variable. There are many possible variations of the simple TAR model, including switching in some parameters, more than two regimes, different threshold variables, and alternative dynamic specifications.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    121 views6 pages

    Threshold Slides

    Uploaded by

    optoergo
    Threshold autoregressive (TAR) models allow movements between regimes that are governed by an observed state variable. A TAR model specifies different autoregressive processes depending on whether a state variable is above or below a threshold value. A self-exciting TAR (SETAR) model occurs when the state variable is the lagged dependent variable. There are many possible variations of the simple TAR model, including switching in some parameters, more than two regimes, different threshold variables, and alternative dynamic specifications.

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    Threshold Autoregressive (TAR) Models

    Movements between regimes governed by an observed variable.



    TAR model:

    Where s
    t-k
    is the state determining variable.
    The integer k determines with how many lags does the state-
    determining variable influences the regime in time t.
    When s
    t-k
    = y
    t-k
    we have a self-exciting TAR (SETAR) model:



    There are many possible variations of this simple model.

    > + +
    < + +
    =


    r s if u y
    r s if u y
    y
    k t t t
    k t t t
    t
    2 1 2 2
    1 1 1 1
    |
    |

    > + +
    < + +
    =


    r y if u y
    r y if u y
    y
    k t t t
    k t t t
    t
    2 1 2 2
    1 1 1 1
    |
    |
    Threshold Autoregressive (TAR) Models
    Example: when s
    t-k
    = y
    t-k
    we have a self-exciting TAR (SETAR) model:




    Consider k = 1. Parameters to be estimated:

    1
    ,
    2,
    o
    1,
    o
    2,
    r
    Estimation method: least squares with r estimated by a grid search.

    There are many possible variations of this simple model:
    Switching in only some of the parameters
    More than 2 regimes
    Different threshold variables
    Alternative dynamic specifications
    Can use AIC or other information criteria to select models


    > + +
    < + +
    =


    r y if u y
    r y if u y
    y
    k t t t
    k t t t
    t
    2 1 2 2
    1 1 1 1
    |
    |
    EXAMPLE: Threshold error correction (cointegration) model
    2
    4
    6
    8
    10
    12
    14
    16
    18
    1960 1965 1970 1975 1980 1985 1990
    R3 R120
    EXAMPLE: Threshold error correction (cointegration) model
    -3
    -2
    -1
    0
    1
    2
    3
    4
    5
    1960 1965 1970 1975 1980 1985 1990
    SPREAD
    EXAMPLE: Threshold error correction (cointegration) model
    EVIEWS program:

    series y = d(r120)
    series x = d(r3)
    series spread = r120 - r3

    scalar th = 3.22
    series _d = ( spread(-1) < th )
    equation tar.ls y c y(-1) y(-2) x(-1) x(-2) _d*spread(-1) (1-_d)*spread(-1)


    EXAMPLE: Threshold error correction (cointegration) model

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