Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/79634 
Authors: 
Year of Publication: 
2013
Series/Report no.: 
SFB 649 Discussion Paper No. 2013-034
Publisher: 
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk, Berlin
Abstract: 
This paper studies the robust estimation and inference of threshold models with integrated regres- sors. We derive the asymptotic distribution of the profiled least squares (LS) estimator under the diminishing threshold effect assumption that the size of the threshold effect converges to zero. Depending on how rapidly this sequence converges, the model may be identified or only weakly identified and asymptotic theorems are developed for both cases. As the convergence rate is unknown in practice, a model-selection procedure is applied to determine the model identification strength and to construct robust confidence intervals, which have the correct asymptotic size irrespective of the magnitude of the threshold effect. The model is then generalized to incorporate endogeneity and serial correlation in error terms, under which, we design a Cochrane-Orcutt feasible generalized least squares (FGLS) estimator which enjoys efficiency gains and robustness against different error specifications, including both I(0) and I(1) errors. Based on this FGLS estimator, we further develop a sup-Wald statistic to test for the existence of the threshold effect. Monte Carlo simulations show that our estimators and test statistics perform well.
Subjects: 
Threshold effects
Integrated processes
Nonlinear cointegration
Weak identification
JEL: 
C12
C22
C52
Document Type: 
Working Paper

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