Outliers and Persistence in Threshold Autoregressive Processes: A Puzzle?

Yamin Ahmad and Luiggi Donayre

Working Papers from UW-Whitewater, Department of Economics

Abstract: We conduct Monte Carlo simulations to investigate the effects of outlier observations on the properties of linearity tests against threshold autoregressive (TAR) processes. By considering different specifications and levels of persistence of the data generating processes, we find that outliers distort the size of the test and that the distortion increases with the level of persistence. However, contrary to what one might expect, we also find that larger outliers could help improve the power of the test in the case of persistent TAR processes.

Keywords: Outliers; Persistence; Monte Carlo Simulations; Threshold Autoregressionn; Size; Power (search for similar items in EconPapers)
JEL-codes: C15 C22 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2014-03
New Economics Papers: this item is included in nep-ecm and nep-ets
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Citations: View citations in EconPapers (1)

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