Functional index coefficient models for locally stationary time series

Abstract

In the analysis of nonlinear time series, we propose a novel functional index coefficient model for the locally stationary data. The proposed model can effectively capture the dynamic interaction effects between variables and the nature of data evolution. Drawing the idea from the spline-backfitted method, we propose a three-step estimation procedure and establish the asymptotic properties of the resulting nonparametric estimators. We further construct simultaneous confidence bands for the time-varying functions to explore the global variation of the original data. We also develop a test statistic to check the time-varying properties based on a bootstrap procedure. Simulation studies have been conducted to investigate the finite sample performance of the proposed methods. Two real applications in the finance market and the Hong Kong respiratory and circulatory disease data are analysed for illustration.