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Threshold Regression Model with Panel Data: Investigating Inflation-Growth Relationship in Europe

In: Applied Econometric Analysis Using Cross Section and Panel Data

Author

Listed:
  • Panchanan Das

    (University of Calcutta)

Abstract

The classical fixed effect or random effect model captures the heterogeneity in intercepts only. The threshold regression model allows heterogeneity of the slope parameters. Threshold regression model was extended for panel data first by (Hansen, J Econ 93:345–368, 1999) in estimating firms’ investment function under financial constraints. (Hansen, J Econ 93:345–368, 1999) model is fixed effect static model which requires covariates to be strongly exogenous for the estimator to be consistent. Later on, the model was used in many areas like relationship between fiscal deficit and economic growth, inflation and economic growth etc. The Stata command xthreg developed by (Wang, Stata J 15:121–134, 2015) computes the Hansen’s fixed effect estimator. (Seo and Shin, J Econ 195:169–186, 2016) extended (Hansen, J Econ 93:345–368, 1999) model to the dynamic panel model with a potentially endogenous threshold variable to allow endogenous covariates. This model captures nonlinear asymmetric dynamics and cross-sectional heterogeneity simultaneously. This Chapter presents the basic threshold regression model with panel data in one-way error component fixed effect framework as developed in (Hansen, J Econ 93:345–368, 1999) and its further development. To illustrate the application of these models, the inflation threshold in growth is estimated with data from 20 European countries by using Stata 17 software.

Suggested Citation

  • Panchanan Das, 2023. "Threshold Regression Model with Panel Data: Investigating Inflation-Growth Relationship in Europe," Contributions to Economics, in: Deep Mukherjee (ed.), Applied Econometric Analysis Using Cross Section and Panel Data, chapter 0, pages 505-537, Springer.
    • Handle: RePEc:spr:conchp:978-981-99-4902-1_17
    DOI: 10.1007/978-981-99-4902-1_17
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    More about this item

    Keywords

    Threshold regression; Panel data; Endogeneity;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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