Handbook of Research Methods and Applications in Empirical Macroeconomics
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Handbook of Research Methods and Applications in Empirical Macroeconomics

Edited by Nigar Hashimzade and Michael A. Thornton

This comprehensive Handbook presents the current state of art in the theory and methodology of macroeconomic data analysis. It is intended as a reference for graduate students and researchers interested in exploring new methodologies, but can also be employed as a graduate text. The Handbook concentrates on the most important issues, models and techniques for research in macroeconomics, and highlights the core methodologies and their empirical application in an accessible manner. Each chapter is largely self-contained, whilst the comprehensive introduction provides an overview of the key statistical concepts and methods. All of the chapters include the essential references for each topic and provide a sound guide for further reading.
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Chapter 8: Estimation and inference in threshold type regime switching models

Jesús Gonzalo and Jean-Yves Pitarakis


The recognition that linear time series models may be too restrictive to capture economically interesting asymmetries and empirically observed non-linear dynamics has over the past twenty years generated a vast research agenda on designing models which could capture such features while remaining parsimonious and analytically tractable. Models that are capable of capturing non-linear dynamics have also been the subject of a much earlier and extensive research led by statisticians as well as practitioners in fields as broad as biology, physics and engineering with a very wide range of proposed specifications designed to capture, model and forecast field specific phenomena (for example bilinear models, random coefficient models, state dependent models and so on). The amount of research that has been devoted to describing the non-linear dynamics of sunspot numbers and Canadian lynx data is an obvious manifestation of this quest (see Tong, 1990; Granger and Terasvirta, 1993; Hansen, 1999; Terasvirta et al., 2010, and references therein). A particular behaviour of interest to economists has been that of regime change or regime switching whereby the parameters of a model are made to change depending on the occurrence of a particular event, episode or policy (for example recessions or expansions, periods of low/high stock market valuations, low/high interest rates) but are otherwise constant within regimes.

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