Stationary Threshold Vector Autoregressive Models

Galyna Grynkiv and Lars Stentoft
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Galyna Grynkiv: Department of Economics, University of Western Ontario, Social Science Centre, London, ON N6A 5C2, Canada

JRFM, 2018, vol. 11, issue 3, 1-23

Abstract: This paper examines the steady state properties of the Threshold Vector Autoregressive model. Assuming that the trigger variable is exogenous and the regime process follows a Bernoulli distribution, necessary and sufficient conditions for the existence of stationary distribution are derived. A situation related to so-called “locally explosive models”, where the stationary distribution exists though the model is explosive in one regime, is analysed. Simulations show that locally explosive models can generate some of the key properties of financial and economic data. They also show that assessing the stationarity of threshold models based on simulations might well lead to wrong conclusions.

Keywords: asset price bubbles; explosive regimes; multivariate nonlinear time series; steady state distributions; TVAR models (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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