Year: 2014
Type: preprint
Abstract: This paper addresses an important and challenging issue as how best to model nonlinear asymmetric dynamics and cross-sectional heterogeneity, simultaneously, in the dynamic threshold panel data framework, in which both threshold variable and regressors are allowed to be endogenous. Depending on whether the threshold variable is strictly exogenous or not, we propose two different estimation methods: first-differenced two-step least squares and first-differenced GMM. The former exploits the fact that the threshold variable is strictly exogenous to achieve the super-consistency of the threshold estimator. We provide asymptotic distributions of both estimators. The bootstrap-based test for the presence of threshold effect as well as the exogeneity test of the threshold variable are also developed. Monte Carlo studies provide a support for our theoretical predictions. Finally, using the UK and the US company panel data, we provide two empirical applications investigating an asymmetric sensitivity of investment to cash flows and an asymmetric dividend smoothing.
Authors: Myung Hwan Seo, Yongcheol Shin
Institutions: Seoul National University, University of York
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
Awards: G1153659480, G841499813
OpenAlex ID: W3123818662