SSE/EFI Working Paper Series in Economics and Finance
No 376:
Time-Varying Smooth Transition Autoregressive Models
Stefan Lundbergh ()
, Timo Teräsvirta ()
and Dick van Dijk ()
Abstract: Nonlinearity, and regime-switching behavior in particular,
and structural change have often been perceived as competing alternatives
to linearity. In this paper we propose a model, based on the principle of
smooth transition, that allows for regime-switching behavior in conjunction
with time-varying parameters. This Time-Varying Smooth Transition
Autoregressive [TV-STAR] model can be used both for describing simultaneous
nonlinearity and structural change and for distinguishing between these
features. Two modeling strategies for empirical specification of TV-STAR
models are developed and tested by Monte Carlo simulation. The simulations
show that neither of the two strategies dominates the other. The relative
merits of each of the specification procedures are illustrated with
empirical applications. The specific-to-general-to-specific procedure is
best suited for obtaining a quick impression of the importance of
nonlinearity and/or structural change for a particular time series. This is
illustrated by an application to a large number of US macroeconomic time
series. The specific-to-general procedure is most useful in careful
specification of a model with nonlinear and/or time-varying properties.
This is demonstrated by a worked example involving the US help-wanted
advertising index.
Keywords: Nonlinearity; structural change; time series model specification; (follow links to similar papers)
JEL-Codes: C22; C51; C52; (follow links to similar papers)
46 pages, April 5, 2000
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- This paper is published as:
-
Lundbergh, Stefan, Timo Teräsvirta and Dick van Dijk, (2003), 'Time-Varying Smooth Transition Autoregressive Models', Journal of Business and Economic Statistics, Vol. 21, pages 104-121
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