Threshold nonlinearities in output: some international evidence
The empirical adequacy of linear AR and nonlinear SETAR models of trend-stationary and difference-stationary representations of output for Canada, Germany, Japan, the UK and the US are appraised. Test results suggest the presence of linear model residual structure of some form for all series, and nonlinearities of specifically threshold form in trend-stationary data for Canada, Germany, Japan and the US, and difference-stationary data for Germany, Japan and the US. With the exception of Canada, estimated threshold nonlinear models imply asymmetric dynamics, are able to account for all nonlinear structure in the data on the basis of BDS statistics, and provide sizeable reductions in residual variance in several cases, most notably for Germany.
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