Theory and Applications of TAR Model with Two Threshold Variables

Haiqiang Chen, Terence Tai Leung Chong and Jushan Bai

Econometric Reviews, 2012, vol. 31, issue 2, 142-170

Abstract: A growing body of threshold models has been developed over the past two decades to capture the nonlinear movement of financial time series. Most of these models, however, contain a single threshold variable only. In many empirical applications, models with two or more threshold variables are needed. This article develops a new threshold autoregressive model which contains two threshold variables. A likelihood ratio test is proposed to determine the number of regimes in the model. The finite-sample performance of the estimators is evaluated and an empirical application is provided.

Date: 2012
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DOI: 10.1080/07474938.2011.607100

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