Panel Smooth Transition Regression Models

Andres Gonzalez, Timo Teräsvirta and Dick van Dijk

No 165, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: We develop a non-dynamic panel smooth transition regression model with fixed individual effects. The model is useful for describing heterogenous panels, with regression coefficients that vary across individuals and over time. Heterogeneity is allowed for by assuming that these coefficients are continuous functions of an observable variable through a bounded function of this variable and fluctuate between a limited number (often two) of “extreme regimes”. The model can be viewed as a generalization of the threshold panel model of Hansen (1999). We extend the modelling strategy for univariate smooth transition regression models to the panel context. This comprises of model specification based on homogeneity tests, parameter estimation, and diagnostic checking, including tests for parameter constancy and no remaining nonlinearity. The new model is applied to describe firms’ investment decisions in the presence of capital market imperfections.

Keywords: financial constraints; heterogenous panel; investment; misspecification test; nonlinear modelling panel data; smooth transition models (search for similar items in EconPapers)
JEL-codes: C12 C23 C52 G31 G32 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2005-08-01
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (258)

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Related works:
Working Paper: Panel Smooth Transition Regression Models (2017)
Working Paper: Panel Smooth Transition Regression Models (2017)
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