Endogeneity in Semiparametric Threshold Regression Model With Two Threshold Variables

Abstract

This paper considers a semiparametric threshold regression model with two threshold variables,
extending Chen et al. (2012) and Kourtellos et al. (2021). The proposed model allows the endogeneity for both threshold variables and the slope regressors. Under the diminishing threshold
effects assumption, we show the consistency and derive the asymptotic results of our proposed
estimator for weakly dependent data. We study the finite sample performance of our proposed
estimator via small Monte Carlo simulations and we apply our model to classify economic growth
regimes based on both national public debt and national external debt.

Keywords: Control function; Public debt; Series estimation; Threshold regression.

JEL Classification: C14, C24, O40