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Inference in Threshold Models

Yoonseok Lee () and Yulong Wang
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Yoonseok Lee: Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244, https://www.maxwell.syr.edu/cpr_about.aspx?id=107374187827

No 223, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: This paper develops new statistical inference methods for the parameters in threshold regression models. In particular, we develop a test for homogeneity of the threshold parameter and a test for linear restrictions on the regression coefficients. The tests are built upon a transformed partial-sum process after re-ordering the observations based on the rank of the threshold variable, which recasts the cross-sectional threshold problem into the time-series structural break analogue. The asymptotic distributions of the test statistics are derived using this novel approach, and the finite sample properties are studied in Monte Carlo simulations. We apply the new tests to the tipping point problem studied by Card, Mas, and Rothstein (2008), and statistically justify that the location of the tipping point varies across tracts.

Keywords: Threshold Regression; Test; Homogeneous Threshold; Linear Restriction; Tipping Point (search for similar items in EconPapers)
JEL-codes: C12 C24 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2020-01
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
References: View references in EconPapers View complete reference list from CitEc
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Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:223

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