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Theory and Applications of TAR Model with Two Threshold Variables

Haiqiang Chen, Terence Tai Leung Chong () and Jushan Bai ()

MPRA Paper from University Library of Munich, Germany

Abstract: A growing body of threshold models has been developed over the past two decades to capture the nonlinear movement of financial time series. Most of these models, however, contain a single threshold variable only. In many empirical applications, models with two or more threshold variables are needed. This paper develops a new threshold autoregressive model which contains two threshold variables. A likelihood ratio test is proposed to determine the number of regimes in the model. The finite-sample performance of the estimators is evaluated and an empirical application is provided.

Keywords: Threshold Autoregressive Model; Misspecification; Likelihood Ratio Test; Bootstrapping. (search for similar items in EconPapers)
JEL-codes: C21 C22 (search for similar items in EconPapers)
Date: 2012-01-01
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Published in Econometric Reviews 31.2(2012): pp. 142-170

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