Dealing With Endogeneity in Threshold Models Using Copulas
Bibliographic Data
| ID | 19419344 |
|---|---|
| Authors | Dimitris Christopoulos (0000-0001-7367-1129, Department of International and European Economic Studies, Athens University of Economics & Business), Peter McAdam (DG Research, European Central Bank), Elias Tzavalis (Department of Economics, Athens University of Economics & Business) |
| Year | 2021 |
| Volume | 39 |
| Issue | 1 |
| Pages | 166-178 |
| Publication date | 2021-01-02 |
| Open Access | No |
| Type | ARTICLE |
| Venue | Journal of Business and Economic Statistics (JOURNAL) |
| Journal identifiers | ISSN: 0735-0015 • E-ISSN: 1537-2707 |
| Publisher | Informa UK Limited (PUBLISHER • GB) |
| DOI | 10.1080/07350015.2019.1647213 |
| OpenAlex | W2963842102 |
| Language | EN |
| Citations received | 4 |
| References cited | 52 |
We suggest a new method dealing with the problem of endogeneity of the threshold variable in structural threshold regression models based on copula theory. This method enables us to relax the assumption that the threshold variable is normally distributed and to capture the dependence structure between the threshold regression error term and the threshold variable independently of the marginal distribution of the threshold variable. For Gaussian and Student’s t copulas, this dependent structure can be captured by copula-type transformations of the distribution of the threshold variable, for each regime of the model. Augmenting the threshold model under these transformations can control for the endogeneity problem of threshold variable. The single-factor correlation structure of the threshold regression error term with these transformations allows us to consistently estimate the threshold and the slope parameters of the model based on a least squares method. Based on a Monte Carlo study, we show that our method is robust to nonlinear dependence structures between the regression error term and the threshold variable implied by the Archimedean family of copulas. We illustrate the method by estimating a model of the foreign-trade multiplier for seven OECD economies
Econometrics · Endogeneity · Regression analysis · Statistics · Threshold model · Financial Risk and Volatility Modeling · Global Financial Crisis and Policies · Mathematics · Monetary Policy and Economic Impact
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| Citations per year | 1.33 |
|---|---|
| Citation span | 2023 - 2026 (4) |
| Highly cited | No |