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Inference for Dynamic Panels with Threshold Effect and Endogeneity

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JournalJournal of Econometrics
DateAccepted/In press - 10 Mar 2016
DateE-pub ahead of print - 18 Aug 2016
DatePublished (current) - Dec 2016
Issue number2
Volume195
Number of pages18
Pages (from-to)169-186
Early online date18/08/16
Original languageEnglish

Abstract

This paper addresses an important issue of modelling nonlinear asymmetric dynamics and unobserved individual heterogeneity in the threshold panel data framework, simultaneously. As a general approach, we develop the fi…rst-differenced GMM estimator, which allows both threshold variable and regressors to be endogenous. When the threshold variable becomes strictly exogenous, we propose a more efficient two-step least squares estimator. We provide asymptotic theory and develop the testing procedure for threshold effects and the threshold variable exogeneity. Monte Carlo studies provide a support for theoretical predictions. We present an empirical application investigating an asymmetric sensitivity of investment to cash ‡flows.

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© 2016 Elsevier B.V. All rights reserved. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details.

    Research areas

  • Dynamic Panel Threshold Models, Endogenous Threshold E¤ects and Regressors, FD-GMM and FD-2SLS, Linearity and Exogeneity Tests, Investment.

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