Two-Regime Threshold Autoregressive Model Simulation
Two-Regime Threshold Autoregressive Model Simulation
This Demonstration allows you to study realizations from a two-regime threshold autoregressive (TAR) process of the first order by changing its parameters. The two-regime TAR(1) model is represented by:=
Parameters are initially set to =-1.5, =-1.5, and =0.5 to obtain the following two-regime TAR(1) process: =
Note that the process is stationary and geometrically ergodic despite the coefficient -1.5 in the first regime. The series contains large upward jumps when it becomes negative (due to the -1.5 coefficient) and there are more positive than negative jumps. The model also contains no constant term, but is not zero.
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α 1 β 1 x t-1 ϵ t | x t-1 |
α 2 β 2 x t-1 ϵ t | x t-1 |
β
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β
1
β
2
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-1.5 x t-1 ϵ t | x t-1 |
0.5 x t-1 ϵ t | x t-1 |
E()
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t