Nonlinearities and outliers: robust specification of STAR models
Alvaro Escribano (),
Philip Hans Franses and
Dick van Dijk ()
No EI 9832, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute
Outliers and nonlinearity may easily be mistaken. This paper uses Monte Carlo methods to examine and compare the behavior of two competing specification procedures for Smooth Transition AutoRegressive [STAR] models under various different circumstances (linear and nonlinear data generating processes, with and without outlier contamination). The extensive simulation evidence demonstrates that the use of outlier-robust variants of the linearity tests which are involved leads to procedures with more desirable properties. An application to several real exchange rate series illustrates the potential usefulness of the robust specification procedures, especially in case one is not certain whether or not aberrant observations are present.
Keywords: Monte Carlo methods; Outliers; Smooth Transition AutoRegressive models; nonlinearity (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ems:eureir:1542
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