Econometrics of Dynamic Index-Threshold Models

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9709508 Bai This research develops the econometric theory for a class of nonlinear dynamic models, referred to as dynamic index-threshold models. These models describe multiple regimes in which regime switching is governed by an unobservable index. The index itself is a linear combination of a number of observable variables with unknown index coefficients. This research addresses the following issues pertaining to the dynamic-index threshold models: 1. Determining the probability structure of the dynamic index-threshold model, such as its stationarity and ergodicity; 2. Determining the statistical properties of the estimators, such as consistency, rate of convergence, and limiting distributions; 3. Testing the hypothesis of stationarity against dynamic index-threshold autoregression; and 4. Solving the computational problems for the dynamic index-threshold models. No general econometric theory has yet been developed for dynamic index-threshold models despite their usefulness for demand analysis when consumers face a kinked budget set resulting from, say, welfare programs, taxation and block-pricing schemes.