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Stationary Threshold Vector Autoregressive Models

Author

Listed:
  • Galyna Grynkiv

    (Department of Economics, University of Western Ontario, Social Science Centre, London, ON N6A 5C2, Canada)

  • Lars Stentoft

    (Department of Economics, University of Western Ontario, Social Science Centre, London, ON N6A 5C2, Canada
    Department of Statistical and Actuarial Sciences, University of Western Ontario, Western Science Centre, London, ON N6A 5B7, Canada)

Abstract

This paper examines the steady state properties of the Threshold Vector Autoregressive model. Assuming that the trigger variable is exogenous and the regime process follows a Bernoulli distribution, necessary and sufficient conditions for the existence of stationary distribution are derived. A situation related to so-called “locally explosive models”, where the stationary distribution exists though the model is explosive in one regime, is analysed. Simulations show that locally explosive models can generate some of the key properties of financial and economic data. They also show that assessing the stationarity of threshold models based on simulations might well lead to wrong conclusions.

Suggested Citation

  • Galyna Grynkiv & Lars Stentoft, 2018. "Stationary Threshold Vector Autoregressive Models," JRFM, MDPI, vol. 11(3), pages 1-23, August.
    • Handle: RePEc:gam:jjrfmx:v:11:y:2018:i:3:p:45-:d:162047
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    3. Yiu-Kuen Tse, 2019. "Editorial for the Special Issue on Financial Econometrics," JRFM, MDPI, vol. 12(3), pages 1-2, September.

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