Logistic Smooth Transition Autoregressive Research Articles

Do Realised Betas Exhibit Up/Down Market Tendencies?

In this paper we employ the LSTAR (logistic smooth transition autoregressive) model to investigate potential nonlinearities, cyclical behavior, causality and duration dependence in the realized monthly betas of thirty-nine U.S. industry portfolios. Tests reject linearity for all but eight industries. The estimated nonlinear models suggest that industry betas are characterized by asymmetric cycles, with the speed of transition between the bull and bear market regimes being relatively slow for seven industries. We find duration dependence in industry betas since the probability of transition between regimes does depend on how long the market has been in an up or a down state.

Bayesian Model Uncertainty In Smooth Transition Autoregressions

Abstract. In this paper, we propose a fully Bayesian approach to the special class of nonlinear time‐series models called the logistic smooth transition autoregressive (LSTAR) model. Initially, a Gibbs sampler is proposed for the LSTAR where the lag length,k, is kept fixed. Then, uncertainty aboutkis taken into account and a novel reversible jump Markov Chain Monte Carlo (RJMCMC) algorithm is proposed. We compared ourRJMCMC algorithmwith well‐known information criteria, such as the Akaikes̀ information criteria, the Bayesian information criteria (BIC) and the deviance information criteria. Our methodology is extensively studied against simulated and real‐time series.

Multiple unemployment equilibria and asymmetric dynamics—Norwegian evidence

A high degree of persistence in European unemployment rates is often termed unemployment hysteresis, which is equated with the presence of a unit root in unemployment series using linear models. However, the implications of this practice are difficult to reconcile with existing evidence on long run unemployment behaviour and the asymmetric response of unemployment to positive and negative shocks. This paper investigates whether the persistence and asymmetric response to positive and negative shocks may be due to the existence of multiple equilibria. Using Norwegian unemployment data, which share important characteristics with other European unemployment series, this paper characterises unemployment behaviour by applying a logistic smooth transition autoregressive (LSTAR) model. It appears that unemployment is a stationary variable that has switched between two stable equilibria during the period 1972–2003. The paper demonstrates that a large shock, or a sequence of small shocks, may cause a transition from one equilibrium level to another and that unemployment responds asymmetrically to large positive and negative shocks, but symmetrically to small shocks.

Detecting Mean Reversion in Real Exchange Rates from a Multiple Regime STAR Model

Recent studies on general equilibrium models with transaction costs show that the dynamics of the real exchange rate are necessarily nonlinear. Our contribution to the literature on nonlinear price adjustment mechanisms is threefold. First, we model the real exchange rate by a Multi-Regime Logistic Smooth Transition AutoRegression (MR-LSTAR), allowing for both ESTAR-type and SETAR-type dynamics. This choice is motivated by the fact that even the theoretical models, which predict a smooth behavior for the real exchange rate, do not rule out the possibility of a discontinuous adjustment as a limit case. Second, we propose two classes of unit-root tests against this MR-LSTAR alternative, based respectively on the likelihood and on an auxiliary model. Their asymptotic distributions are derived analytically. Third, when applied to 28 bilateral real exchange rates, our tests reject the null hypothesis of a unit root for eleven series bringing evidence in favor of the purchasing power parity.

Estimating Asymmetric Output Cost of Lowering Inflation for Australia

The purpose of this paper is to estimate the output cost associated with lowering inflation for Australia. The paper is particularly motivated by a strand of theoretical and empirical evidence in the literature suggesting nonlinearity in the output‐inflation relationship, namely, a nonlinear Phillips curve. To accommodate this potentially important departure from linearity, a vector autoregression (VAR) model of output, inflation, and the terms of trade is augmented with logistic smooth transition autoregression specifications. My empirical results indicate that the model captures the nonlinear features present in the data well. Based on this nonlinear approximation, the output costs for reducing inflation are found to vary, depending critically on the state of the economy, the size of intended inflation change, and whether policymakers seek to disinflate or prevent inflation from rising. This implies that inferences based on the conventional linear Phillips curve may provide misleading signals about the cost of lowering inflation and thus the appropriate policy stance.

Estimating Asymmetric Output Cost of Lowering Inflation for Australia

The purpose of this paper is to estimate the output cost associated with lowering inflation for Australia. The paper is particularly motivated by a strand of theoretical and empirical evidence in the literature suggesting nonlinearity in the output-inflation relationship, namely, a nonlinear Phillips curve. To accommodate this potentially important departure from linearity, a vector autoregression (VAR) model of output, inflation, and the terms of trade is augmented with logistic smooth transition autoregression specifications. My empirical results indicate that the model captures the nonlinear features present in the data well. Based on this nonlinear approximation, the output costs for reducing inflation are found to vary, depending critically on the state of the economy, the size of intended inflation change, and whether policymakers seek to disinflate or prevent inflation from rising. This implies that inferences based on the conventional linear Phillips curve may provide misleading signals about the cost of lowering inflation and thus the appropriate policy stance.