Modelling autoregressive processes with a shifting mean

Andres Gonzalez and Timo Teräsvirta

No 637, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: In this paper we introduce an autoregressive model with a deterministically shifting intercept. This implies that the model has a shifting mean and is thus nonstationary but stationary around a nonlinear deterministic component. The shifting intercept is defined as a linear combination of logistic transition functions with time as the transition variables. The number of transition functions is determined by selecting the appropriate functions from a possibly large set of alternatives using a sequence of specification tests. This selection procedure is a modification of a similar technique developed for neural network modelling by White (2006). A Monte Carlo experiment is conducted to show how the proposed modelling procedure and some of its variants work in practice. The paper contains two applications in which the results are compared with what is obtained by assuming that the time series used as examples may contain structural breaks instead of smooth transitions and selecting the number of breaks following the technique of Bai and Perron (1998).

Keywords: deterministic shift; nonlinear autoregression; nonstationarity; nonlinear trend; smooth transition; structural change (search for similar items in EconPapers)
JEL-codes: C22 C52 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2006-09-27, Revised 2007-05-22
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ict
Note: This is the revised (May 2007) version of the paper.
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Citations: View citations in EconPapers (3)

Published in Studies in Nonlinear Dynamics and Econometrics, 2008.

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Related works:
Journal Article: Modelling Autoregressive Processes with a Shifting Mean (2008)
Working Paper: Modelling autoregressive processes with a shifting mean (2006)
Working Paper: Modelling autoregressive processes with a shifting mean (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0637

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