Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 263: A nonlinear time series model of El Niño

Anthony D. Hall (), Joakim Skalin () and Timo Teräsvirta ()
Additional contact information
Anthony D. Hall: School of Finance and Economics, University of Technology, Sydney, Postal: PO Box 123 , Broadway NSW 2007 , Australia
Joakim Skalin: Dept for Economic Affairs, Ministry of Finance, Postal: SE-103 33 Stockholm, Sweden
Timo Teräsvirta: Dept. of Economic Statistics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: A smooth transition autoregressive model is estimated for the Southern Oscillation Index, an index commonly used as a measure of El Niño events. Using standard measures there is no indication of nonstationarity in the index. A logistic smooth transition autoregressive model describes the most turbulent periods in the data (these correspond to El Niño events) better than a linear autoregressive model. The estimated nonlinear model passes a battery of diagnostic tests. A generalised impulse response function indicates local instability, but as deterministic extrapolation from the estimated model converges, the nonlinear model may still be useful for forecasting the El Niño Southern Oscillation a few months ahead.

Keywords: Smooth transition autoregression; Nonlinearity; Time series model; El Niño; Southern Oscillation

JEL-codes: C22

25 pages, September 28, 1998

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