Random Walk Smooth Transition Autoregressive Models

Heather Anderson and Chin Nam Low ()

No 22/04, Monash Econometrics and Business Statistics Working Papers from Monash University, Department of Econometrics and Business Statistics

Abstract: This paper extends the family of smooth transition autoregressive (STAR) models by proposing a specification in which the autoregressive parameters follow random walks. The random walks in the parameters can capture structural change within a regime switching framework, but in contrast to the time varying STAR (TV-STAR) speciifcation recently introduced by Lundbergh et al (2003), structural change in our random walk STAR (RW-STAR) setting follows a stochastic process rather than a deterministic function of time. We suggest tests for RW-STAR behaviour and study the performance of RW-STARmodels in an empirical setting. The out-of sample forecasting performance of our RW-STAR models is encouraging - better than AR, LSTAR and TV-STAR specifications with respect to point forecasts and on a par with TV-STAR speciÞcations with respect to forecast density evaluations.

Keywords: Forecast density evaluation; Non-constant parameters; Random walk (search for similar items in EconPapers)
JEL-codes: C22 C51 E32 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2004-11, Revised 2005-05
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2004/wp22-04.pdf Revised version, May 2005 (application/pdf)

Related works:
Chapter: Random Walk Smooth Transition Autoregressive Models (2006)
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