SSE/EFI Working Paper Series in Economics and Finance
No 604:
Panel Smooth Transition Regression Models
Andrés González ()
, Timo Teräsvirta ()
and Dick van Dijk ()
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; heterogeneous panel; invesatment; misspecification test; nonlinear modelling panel data; smooth transition model; (follow links to similar papers)
JEL-Codes: C12; C23; C52; G31; G32; (follow links to similar papers)
33 pages, August 17, 2005
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