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Testing for threshold effects in regression models

Sokbae (Simon) Lee (), Myung Hwan Seo and Youngki Shin ()

No CWP36/10, CeMMAP working papers from Centre for Microdata Methods and Practice, Institute for Fiscal Studies

Abstract: In this article, we develop a general method for testing threshold effects in regression models, using sup-likelihood-ratio (LR)-type statistics. Although the sup-LR-type test statistic has been considered in the literature, our method for establishing the asymptotic null distribution is new and nonstandard. The standard approach in the literature for obtaining the asymptotic null distribution requires that there exist a certain quadratic approximation to the objective function. The article provides an alternative, novel method that can be used to establish the asymptotic null distribution, even when the usual quadratic approximation is intractable. We illustrate the usefulness of our approach in the examples of the maximum score estimation, maximum likelihood estimation, quantile regression, and maximum rank correlation estimation. We establish consistency and local power properties of the test. We provide some simulation results and also an empirical application to tipping in racial segregation. This article has supplementary materials online.

Keywords: regression; econometrics (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2010-12-03
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http://cemmap.ifs.org.uk/wps/cwp3610.pdf (application/pdf)

Related works:
Journal Article: Testing for Threshold Effects in Regression Models (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:ifs:cemmap:36/10

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