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Variable selection in threshold model with a covariate-dependent threshold

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  • Lixiong Yang

    (Lanzhou University)

Abstract

This paper studies the variable selection problem in threshold model with a covariate-dependent threshold, in which the threshold is modeled by a function of candidate variables that affect the separation of regimes. To simultaneously select explanatory variables and the variables that affect the threshold, we develop a variable selection procedure via mixed integer optimization in the $$l_0$$ l 0 -penalization framework. Monte Carlo simulations are conducted to assess the performance of the suggested variable selection procedure, and the simulation results indicate that the variable selection procedure works well in finite samples. The empirical usefulness of the proposed approach is illustrated with an application to the famous growth–debt nexus.

Suggested Citation

  • Lixiong Yang, 2023. "Variable selection in threshold model with a covariate-dependent threshold," Empirical Economics, Springer, vol. 65(1), pages 189-202, July.
    • Handle: RePEc:spr:empeco:v:65:y:2023:i:1:d:10.1007_s00181-022-02340-3
    DOI: 10.1007/s00181-022-02340-3
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    References listed on IDEAS

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    More about this item

    Keywords

    Variable selection; Threshold model; Covariate-dependent threshold; Monte Carlo simulations; Growth–debt nexus;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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