Is There a Jump in the Transition?
Young-Joo Kim and
Myung Hwan Seo
Journal of Business & Economic Statistics, 2017, vol. 35, issue 2, 241-249
This article develops a statistical test for the presence of a jump in an otherwise smooth transition process. In this testing, the null model is a threshold regression and the alternative model is a smooth transition model. We propose a quasi-Gaussian likelihood ratio statistic and provide its asymptotic distribution, which is defined as the maximum of a two parameter Gaussian process with a nonzero bias term. Asymptotic critical values can be tabulated and depend on the transition function employed. A simulation method to compute empirical critical values is also developed. Finite-sample performance of the test is assessed via Monte Carlo simulations. The test is applied to investigate the dynamics of racial segregation within cities across the United States.
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jnlbes:v:35:y:2017:i:2:p:241-249
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