Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/230731 
Year of Publication: 
2018
Series/Report no.: 
IRTG 1792 Discussion Paper No. 2018-020
Publisher: 
Humboldt-Universität zu Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series", Berlin
Abstract: 
In this paper, we propose a new class of regime shift models with exible switching mechanism that relies on a nonparametric probability function of the observed thresh- old variables. The proposed models generally embrace traditional threshold models with contaminated threshold variables or heterogeneous threshold values, thus gaining more power in handling complicated data structure. We solve the identification issue by imposing either global shape restriction or boundary condition on the nonparametric probability function. We utilize the natural connection between penalized splines and hierarchical Bayes to conduct smoothing. By adopting dierent priors, our procedure could work well for estimations of smooth curve as well as discontinuous curves with occasionally structural breaks. Bayesian tests for the existence of threshold eects are also conducted based on the posterior samples from Markov chain Monte Carlo (M- CMC) methods. Both simulation studies and an empirical application in predicting the U.S. stock market returns demonstrate the validity of our methods.
Subjects: 
Threshold Model
Nonparametric
Markov Chain Monte Carlo
Bayesian Inference
Spline
JEL: 
C00
Document Type: 
Working Paper

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