Title: Threshold stochastic unit root models
Authors: Jesus Gonzalo Munoz - Universidad Carlos III de Madrid (Spain) [presenting]
Abstract: The main goal is to propose a model that is able to explain the existence of unit roots in economic variables. This is done by introducing a Threshold Stochastic Unit Root Model (TARSUR), where the largest root of an AR is allowed to vary between regimes triggered by a threshold variable, in such a way that the expectation of that root is still unity. The stationarity properties of the model are analyzed, and a testing strategy is presented. Applications to stock prices, commodity prices, interest rates and exchange rates are shown.