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A Threshold Model of Real U.S. GDP and the Problem of Constructing Confidence Intervals in TAR Models

Author

Listed:
  • Enders Walter

    (University of Alabama)

  • Falk Barry L

    (Iowa State University)

  • Siklos Pierre

    (Wilfrid Laurier University)

Abstract

We estimate real US GDP growth as a threshold autoregressive process, and construct confidence intervals for the parameter estimates. However, there are various approaches that can be used in constructing the confidence intervals. We construct confidence intervals for the slope coefficients and the threshold using asymptotic results and bootstrap methods, finding that the results for the different methods have very different economic implications. We perform a Monte Carlo experiment to evaluate the various methods. Surprisingly, the confidence intervals are wide enough to cast doubt on the assertion that the time-series responses of GDP to negative growth rates are different than the responses to positive growth rates.

Suggested Citation

  • Enders Walter & Falk Barry L & Siklos Pierre, 2007. "A Threshold Model of Real U.S. GDP and the Problem of Constructing Confidence Intervals in TAR Models," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 11(3), pages 1-28, September.
    • Handle: RePEc:bpj:sndecm:v:11:y:2007:i:3:n:4
    DOI: 10.2202/1558-3708.1322
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    Cited by:

    1. Enders, Walter & Im, Kyung So & Lee, Junsoo & Strazicich, Mark C., 2010. "IV threshold cointegration tests and the Taylor rule," Economic Modelling, Elsevier, vol. 27(6), pages 1463-1472, November.
    2. Catherine Araujo Bonjean & Jean-François Brun, 2014. "Chocolate price fluctuations may cause depression: an analysis of price pass-through in the cocoa chain," Working Papers halshs-01074157, HAL.
    3. Li, Jing, 2011. "Bootstrap prediction intervals for SETAR models," International Journal of Forecasting, Elsevier, vol. 27(2), pages 320-332.
    4. Catherine ARAUJO BONJEAN & Jean-François BRUN, 2010. "Price Transmission in the Cocoa-Chocolate Chain," Working Papers 201003, CERDI.
    5. Catherine Araujo Bonjean & Jean-François Brun, 2014. "Chocolate price fluctuations may cause depression: an analysis of price pass-through in the cocoa chain," CERDI Working papers halshs-01074157, HAL.
    6. Kundu, Srikanta & Kundu, Ruma & Chettri, Kul Bahadur, 2024. "Asymmetric effects of democracy and macroeconomic factors on happiness under high and low per capita incomes: A threshold panel analysis," Ecological Economics, Elsevier, vol. 216(C).
    7. Catherine Araujo Bonjean & Jean-François Brun, 2011. "Price Transmission in the Cocoa-Chocolate Chain," CERDI Working papers halshs-00552997, HAL.
    8. Ahmad Yamin & Donayre Luiggi, 2016. "Outliers and persistence in threshold autoregressive processes," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 20(1), pages 37-56, February.
    9. Donayre Luiggi & Eo Yunjong & Morley James, 2018. "Improving likelihood-ratio-based confidence intervals for threshold parameters in finite samples," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 22(1), pages 1-11, February.
    10. Li, Jing, 2011. "Bootstrap prediction intervals for SETAR models," International Journal of Forecasting, Elsevier, vol. 27(2), pages 320-332, April.
    11. Subervie, Julie, 2011. "Producer price adjustment to commodity price shocks: An application of threshold cointegration," Economic Modelling, Elsevier, vol. 28(5), pages 2239-2246, September.
    12. Shahbaba Babak, 2009. "Discovering Hidden Structures Using Mixture Models: Application to Nonlinear Time Series Processes," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 13(2), pages 1-21, May.

    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications

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