Contemporaneous threshold autoregressive models: estimation, testing and forecasting

Michael Dueker, Martin Sola and Fabio Spagnolo

No 2003-024, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper proposes a contemporaneous smooth transition threshold autoregressive model (C-STAR) as a modification of the smooth transition threshold autoregressive model surveyed in Tersvirta (1998), in which the regime weights depend on the ex ante probability that a latent regime-specific variable will exceed a threshold value. We argue that the contemporaneous model is well-suited to rational expectations applications (and pricing exercises), in that it does not require the initial regimes to be predetermined. We investigate the properties of the model and evaluate its finite-sample maximum likelihood performance. We also propose a method to determine the number of regimes based on a modified Hansen (1992) procedure. Furthermore, we construct multiple-step ahead forecasts and evaluate the forecasting performance of the model. Finally, an empirical application of the short term interest rate yield is presented and discussed. ; Earlier title: Contemporaneous threshold autoregressive models: estimation, forecasting and rational expectations applications

Keywords: Rational expectations (Economic theory); Forecasting (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Contemporaneous threshold autoregressive models: Estimation, testing and forecasting (2007)
Working Paper: Contemporaneous Threshold Autoregressive Models: Estimation, Testing and Forecasting (2007)
Working Paper: Contemporaneous Threshold Autoregressive Models: Estimation, Testing and Forecasting (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2003-024

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DOI: 10.20955/wp.2003.024

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