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Outliers and persistence in threshold autoregressive processes

Yamin Ahmad and Luiggi Donayre ()

Studies in Nonlinear Dynamics & Econometrics, 2016, vol. 20, issue 1, 37-56

Abstract: This paper uses Monte Carlo simulations to investigate the effects of outlier observations on the properties of linearity tests against threshold autoregressive (TAR) processes. By considering different specifications and levels of persistence for the data-generating processes, we find that additive outliers distort the size of the test and that the distortion increases with the level of persistence. In addition, we also find that larger additive outliers can help to improve the power of the test in the case of persistent TAR processes.

Date: 2016
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DOI: 10.1515/snde-2014-0058

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