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Multivariate contemporaneous-threshold autoregressive models☆

By M.J. Dueker, Zacharias Psaradakis, Martin Sola and F. Spagnolo

Abstract

This paper proposes a contemporaneous-threshold multivariate smooth transition autoregressive (C-MSTAR) model in which the regime weights depend on the ex-ante probabilities that latent regime-specific variables exceed certain threshold values. A key feature of the model is that the transition function depends on all the parameters of the model as well as on the data. Since the mixing weights are also a function of the regime-specific noise covariance matrix, the model can account for contemporaneous regime-specific co-movements of the variables. The stability and distributional properties of the proposed model are discussed, as well as issues of estimation, testing and forecasting. The practical usefulness of the C-MSTAR model is illustrated by examining the relationship between US stock prices and interest rates

Topics: ems
Publisher: Elsevier
Year: 2011
DOI identifier: 10.1016/j.jeconom.2010.09.011
OAI identifier: oai:eprints.bbk.ac.uk.oai2:3001
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