A Time-Varying Threshold STAR Model with Applications

Michael Dueker, Laura Jackson Young, Michael Owyang and Martin Sola

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: Smooth-transition autoregressive (STAR) models, competitors of Markov-switching models, are limited by an assumed time-invariant threshold level. We augment the STAR model with a time-varying threshold that can be interpreted as a “tipping level” where the mean and dynamics of the VAR shift. Thus, the time-varying latent threshold level serves as a demarcation between regimes. We show how to estimate the model in a Bayesian framework using a Metropolis step and an unscented Kalman filter proposal. To show how allowing time variation in the threshold can affect the results, we present two applications: a model of the natural rate of unemployment and a model of regime-dependent government spending.

Keywords: Regime switching; smooth-transition autoregressive model; unemployment; nonlinear models. (search for similar items in EconPapers)
JEL-codes: C22 E31 G12 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2022-12
New Economics Papers: this item is included in nep-ecm and nep-ets
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Related works:
Journal Article: A time-varying threshold STAR model with applications (2023)
Working Paper: A Time-Varying Threshold STAR Model with Applications (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:2022_04

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