A Threshold Model of Real U.S. GDP and the Problem of Constructing Confidence Intervals in TAR Models

28 Pages Posted: 6 Aug 2007

See all articles by Walter Enders

Walter Enders

University of Alabama - Department of Economics, Finance and Legal Studies

Barry Falk

Iowa State University

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Abstract

We estimate real US GDP growth as a threshold autoregressive process, and construct confidence intervals for the parameter estimates. However, there are various approaches that can be used in constructing the confidence intervals. We construct confidence intervals for the slope coefficients and the threshold using asymptotic results and bootstrap methods, finding that the results for the different methods have very different economic implications. We perform a Monte Carlo experiment to evaluate the various methods. Surprisingly, the confidence intervals are wide enough to cast doubt on the assertion that the time-series responses of GDP to negative growth rates are different than the responses to positive growth rates.

Keywords: threshold models, confidence intervals, Monte Carlo

JEL Classification: C22, C52

Suggested Citation

Enders, Walter and Falk, Barry and Siklos, Pierre L., A Threshold Model of Real U.S. GDP and the Problem of Constructing Confidence Intervals in TAR Models. Studies in Nonlinear Dynamics and Econometrics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1004774

Walter Enders

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
200 Alston Hall
Tuscaloosa, AL 35487
United States
205-348-8972 (Phone)
205-348-0590 (Fax)

Barry Falk

Iowa State University ( email )

260 Heady Hall
Ames, IA 50011
United States
515-294-5875 (Phone)
515-294-6740 (Fax)

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

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