The Bi-Parameter Smooth Transition Autoregressive Model

Abstract

The paper introduces a nonlinear model that belongs to the STAR family of models. The main feature of the suggested Bi-parameter Smooth Transition AutoRegressive (BSTAR) model is that it allows for different speed of transition between the middle regime and each of the identical outer regimes. Thus, the BSTAR model can be considered as a generalization of the LSTR2 model introduced in Terasvirta (1998) which imposes symmetric speed of adjustment between the middle and each of the identical outer regimes.

JEL Classification: C22, C50, E23