Threshold regression cross sample equality test

For technical questions regarding estimation of single equations, systems, VARs, Factor analysis and State Space Models in EViews. General econometric questions and advice should go in the Econometric Discussions forum.

Moderators: EViews Gareth, EViews Moderator

jerrychang
Posts: 2
Joined: Tue Jun 16, 2015 12:52 am

Threshold regression cross sample equality test

Postby jerrychang » Fri Oct 13, 2017 8:00 am

Dear Sir/Madam
I have a question regarding the estimation of the threshold regression model (TAR) in eviews.
I am estimating a threshold model with three regimes and two thresholds.
According to theories, I am supposed to get three regimes, and the test also suggests so.
Thus, everything went as planned. I used the fixed number sequential method for the TAR estimation. In other words, I pre-specified two thresholds for the estimation.
However, for some economic reasons and the sake of interpretation, I need to estimate the model separately for two subsamples, namely high debt capacity and low debt capacity subsamples. As I said, for each subsample, I am supposed to get two thresholds with three different regimes. Here my threshold variable is another variable, say Z.

Basically, the model will look something like below:
Y=c+bX , for high debt capacity subsample, estimated using TAR with two thresholds.
Y=c+aX, for low debt capacity subsample, estimated using TAR with two thresholds.

Because I got three regimes for each subsample, the results for each separate estimation will give me something like below:
b1 (i.e. regime1, high debt) , b2 (i.e. regime2, high debt), b3(i.e. regime3, high debt)
a1 (i.e. regime1, low debt), a2 (i.e. regime2, low debt), a3 (i.e. regime3, low debt)

My question is how do I test if b1=a1, b2=a2 and b3=a3 across the two samples in this case?

For a simple cross sample equality test, I can go with the chow test. But the issue here is obviously more complicated. For one thing, I am not really sure how to refer to the estimated coefficients when I do the test. In other words, how do I specify Eq1_b1=Eq2_a1 in eviews? For another, the chow test simply disappears in the stability diagnostic drop-Down menu, after the TAR estimation.

I also checked the Eviews forum. Someone suggested that we combine two subsamples and use a dummy variable indicator with interaction terms for the cross-sample equality test. But this will get tricky as well. Say we create a dummy for one subsample (i.e. 1) and 0 for the other. How do we put it in the TAR model? Do we list the dummy as non_varying regressors and the interaction as threshold varying regressor? That is not what I wanted here.

What I am supposed to do is to test the coefficient equality for each of the three regimes for the two different subsamples. I imagine there might be some debates on if the TAR model is fit for the estimation and if I should pre-specify two thresholds. Despite those possible arguments, is there a way to do the cross-sample equality test for the TAR model?
Many thanks in advance.

Jerry

Return to “Estimation”

Who is online

Users browsing this forum: Bing [Bot], zoe_zz and 9 guests