Functional Coefficient Autoregressive Models: Estimation and Tests of Hypotheses

Rong Chen and Lon‐Mu Liu

Journal of Time Series Analysis, 2001, vol. 22, issue 2, 151-173

Abstract: In this paper, we study nonparametric estimation and hypothesis testing procedures for the functional coefficient AR (FAR) models of the form Xt=f1(Xt−d)Xt− 1+ ... +fp(Xt−d)Xt−p+εt, first proposed by Chen and Tsay (1993). As a direct generalization of the linear AR model, the FAR model is a rich class of models that includes many useful parametric nonlinear time series models such as the threshold AR models of Tong (1983) and exponential AR models of Haggan and Ozaki (1981). We propose a local linear estimation procedure for estimating the coefficient functions and study its asymptotic properties. In addition, we propose two testing procedures. The first one tests whether all the coefficient functions are constant, i.e. whether the process is linear. The second one tests if all the coefficient functions are continuous, i.e. if any threshold type of nonlinearity presents in the process. The results of some simulation studies as well as a real example are presented.

Date: 2001
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