A multi-level panel STAR model for US manufacturing sectors

Dick van Dijk (), Dennis Fok and Philip Hans Franses
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Philip Hans Franses: Econometric Institute, Erasmus University Rotterdam, The Netherlands, Postal: Econometric Institute, Erasmus University Rotterdam, The Netherlands

Journal of Applied Econometrics, 2005, vol. 20, issue 6, pages 811-827

Abstract: We introduce a multi-level smooth transition model for a panel of time series, which can be used to examine the presence of common nonlinear business cycle features across many variables. The model is positioned in between a fully pooled model, which imposes such common features, and a fully heterogeneous model, which allows for unrestricted nonlinearity. We introduce a second-stage model linking the parameters that determine the timing of the switches between business cycle regimes to observable explanatory variables, thereby allowing for lead-lag relationships across panel members. We discuss representation, estimation by concentrated simulated maximum likelihood and inference. We illustrate our model using quarterly industrial production in 19 US manufacturing sectors, and document that there are subtle differences across sectors in leads and lags for switches between business cycle recessions and expansions. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
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