Threshold Regression Model with Panel Data: Investigating Inflation-Growth Relationship in Europe

Panchanan Das ()
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Panchanan Das: University of Calcutta

Chapter Chapter 17 in Applied Econometric Analysis Using Cross Section and Panel Data, 2023, pp 505-537 from Springer

Abstract: Abstract The classical fixed effect or random effect model captures the heterogeneity in intercepts only. The threshold regression model allows heterogeneity of the slope parameters. Threshold regression model was extended for panel data first by (Hansen, J Econ 93:345–368, 1999) in estimating firms’ investment function under financial constraints. (Hansen, J Econ 93:345–368, 1999) model is fixed effect static model which requires covariates to be strongly exogenous for the estimator to be consistent. Later on, the model was used in many areas like relationship between fiscal deficit and economic growth, inflation and economic growth etc. The Stata command xthreg developed by (Wang, Stata J 15:121–134, 2015) computes the Hansen’s fixed effect estimator. (Seo and Shin, J Econ 195:169–186, 2016) extended (Hansen, J Econ 93:345–368, 1999) model to the dynamic panel model with a potentially endogenous threshold variable to allow endogenous covariates. This model captures nonlinear asymmetric dynamics and cross-sectional heterogeneity simultaneously. This Chapter presents the basic threshold regression model with panel data in one-way error component fixed effect framework as developed in (Hansen, J Econ 93:345–368, 1999) and its further development. To illustrate the application of these models, the inflation threshold in growth is estimated with data from 20 European countries by using Stata 17 software.

Keywords: Threshold regression; Panel data; Endogeneity (search for similar items in EconPapers)
JEL-codes: C21 C24 C26 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-981-99-4902-1_17

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DOI: 10.1007/978-981-99-4902-1_17

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