Multivariate Contemporaneous Threshold Autoregressive Models
FRB of St. Louis Working Paper No. 2007-019A
30 Pages Posted: 15 May 2007
Date Written: May 2007
In this paper we propose 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. The model is a multivariate generalization of the contemporaneous threshold autoregressive model introduced by Dueker et al. (2007). 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. The stability and distributional properties of the proposed model are investigated. The C-MSTAR model is also used to examine the relationship between US stock prices and interest rates.
Keywords: Nonlinear autoregressive models, Smooth transition, Stability, Threshold
JEL Classification: C32, G12
Suggested Citation: Suggested Citation