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Adaptive varying-coefficient linear models

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Abstract:

Summary.

Varying-coefficient linear models arise from multivariate nonparametric regression, non-linear time series modelling and forecasting, functional data analysis, longitudinal data analysis and others. It has been a common practice to assume that the varying coefficients are functions of a given variable, which is often called an index. To enlarge the modelling capacity substantially, this paper explores a class of varying-coefficient linear models in which the index is unknown and is estimated as a linear combination of regressors and/or other variables. We search for the index such that the derived varying-coefficient model provides the least squares approximation to the underlying unknown multidimensional regression function. The search is implemented through a newly proposed hybrid backfitting algorithm. The core of the algorithm is the alternating iteration between estimating the index through a one-step scheme and estimating coefficient functions through one-dimensional local linear smoothing. The locally significant variables are selected in terms of a combined use of the t-statistic and the Akaike information criterion. We further extend the algorithm for models with two indices. Simulation shows that the methodology proposed has appreciable flexibility to model complex multivariate non-linear structure and is practically feasible with average modern computers. The methods are further illustrated through the Canadian mink–muskrat data in 1925–1994 and the pound–dollar exchange rates in 1974–1983.

Keywords: Akaike information criterion; Backfitting algorithm; Generalized cross-validation; Local linear regression; Local significant variable selection; One-step estimation; Smoothing index

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/1467-9868.00372

Affiliations: 1: University of North Carolina, Chapel Hill, USA 2: London School of Economics and Political Science, UK 3: University of North Carolina, Charlotte, USA

Publication date: February 1, 2003

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