Stationary Threshold Vector Autoregressive Models

42 Pages Posted: 18 Aug 2018

See all articles by Galyna Grynkiv

Galyna Grynkiv

University of Western Ontario

Lars Stentoft

Department of Economics, University of Western Ontario; Center for Interuniversity Research and Analysis on Organization (CIRANO); Aarhus University - CREATES

Date Written: August 5, 2018

Abstract

This paper examines the steady state properties of the Threshold Vector Autoregressive model. Assuming that the trigger variable is exogenous and the regime process follows a Bernoulli distribution, necessary and sufficient conditions for the existence of stationary distribution are derived. A situation related to so-called "locally explosive models", where the stationary distribution exists though the model is explosive in one regime, is analysed. Simulations show that locally explosive models can generate some of the key properties of financial and economic data. They also show that assessing the stationarity of threshold models based on simulations might well lead to wrong conclusions.

Keywords: Asset Price Bubbles, Explosive Regimes, Multivariate Nonlinear Time Series, Steady State Distributions, TVAR Models

JEL Classification: C1, C3, C5, G1

Suggested Citation

Grynkiv, Galyna and Stentoft, Lars, Stationary Threshold Vector Autoregressive Models (August 5, 2018). Available at SSRN: https://ssrn.com/abstract=3226570 or http://dx.doi.org/10.2139/ssrn.3226570

Galyna Grynkiv

University of Western Ontario

Department of Economics
University of Western Ontario
London, Ontario N6A 5B8
Canada

Lars Stentoft (Contact Author)

Department of Economics, University of Western Ontario ( email )

London, Ontario N6A 5B8
Canada

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

Aarhus University - CREATES

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

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