Contemporaneous Threshold Autoregressive Models: Estimation, Forecasting and Rational Expectations Applications

FRB of St. Louis Working Paper No. 2003-025A

Posted: 5 Dec 2004

See all articles by Michael Dueker

Michael Dueker

Russell Investments

Martín Sola

Universidad Torcuato Di Tella; University of London - Economics, Mathematics and Statistics

Fabio Spagnolo

Brunel University London - Economics and Finance

Date Written: 2003

Abstract

This paper proposes a contemporaneous smooth transition threshold autoregressive model (C-STAR) as a modification of the smooth transition threshold autoregressive model surveyed in Terasvirta (1998). Because it uses a forward-looking approach to weight the regimes, in contrast to the typical lagged threshold model, the C-STAR model is well-suited to forward looking rational expectations applications, such as bond pricing. We present an application to the pricing of bonds under the Expectations Hypothesis with a C-STAR driving process for the short-term rate.

Keywords: Smooth transition threshold autoregressive, rational expectations, forecasting

JEL Classification: C22, E31, G12

Suggested Citation

Dueker, Michael and Sola, Martín and Spagnolo, Fabio, Contemporaneous Threshold Autoregressive Models: Estimation, Forecasting and Rational Expectations Applications (2003). FRB of St. Louis Working Paper No. 2003-025A. Available at SSRN: https://ssrn.com/abstract=626856

Michael Dueker (Contact Author)

Russell Investments ( email )

909 A Street
Tacoma, WA 98402
United States

HOME PAGE: http://sites.google.com/site/michaeldueker

Martín Sola

Universidad Torcuato Di Tella ( email )

Minones 2159
1428 Buenos Aires, 1428
Argentina
5411 4784 0080 (Phone)
5411 4784 9807 (Fax)

University of London - Economics, Mathematics and Statistics ( email )

Malet Street
London, WC1E 7HX
United Kingdom
+44 20 7631 6411 (Phone)
+44 20 7631 6416 (Fax)

HOME PAGE: http://www.econ.bbk.ac.uk/faculty/sola/

Fabio Spagnolo

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom
+44 1895 816383 (Phone)
+44 1895 203303 (Fax)

HOME PAGE: http://www.brunel.ac.uk/depts/ecf/Staff/SpagnoloF/Main.htm

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