Modelling Autoregressive Processes with a Shifting Mean

Andres Gonzalez and Timo Teräsvirta

Studies in Nonlinear Dynamics & Econometrics, 2008, vol. 12, issue 1, 28

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).

Date: 2008
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Related works:
Working Paper: Modelling autoregressive processes with a shifting mean (2007)
Working Paper: Modelling autoregressive processes with a shifting mean (2006)
Working Paper: Modelling autoregressive processes with a shifting mean (2006)
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DOI: 10.2202/1558-3708.1459

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