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  The estimation of threshold models in price transmission analysis.

Greb, F., von Cramon-Taubadel, S., Krivobokova, T., & Munk, A. (2013). The estimation of threshold models in price transmission analysis. American Journal of Agricultural Economics, 95(4), 900-916. doi:10.1093/ajae/aat006.

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Item Permalink: http://hdl.handle.net/11858/00-001M-0000-0014-46F2-A Version Permalink: http://hdl.handle.net/11858/00-001M-0000-0027-CA65-3
Genre: Journal Article

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 Creators:
Greb, F., Author
von Cramon-Taubadel, S., Author
Krivobokova, T., Author
Munk, A.1, Author              
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1Research Group of Statistical Inverse-Problems in Biophysics, MPI for biophysical chemistry, Max Planck Society, ou_1113580              

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 Abstract: The threshold vector error correction model is a popular tool for the analysis of spatial price transmission. In the literature, the profile likelihood estimator is the preferred choice for estimating this model. Yet, in many settings this estimator performs poorly. In particular, if the true thresholds are such that one or more regimes contain only a small number of observations, if unknown model parameters are numerous, or if parameters differ little between regimes, the profile likelihood estimator displays large bias and variance. Such settings are likely when studying price transmission. We analyze the weaknesses of the profile likelihood approach and propose an alternative regularized Bayesian estimator, which was developed for simpler but related threshold models. Simulation results show that the regularized Bayesian estimator outperforms profile likelihood in the estimation of threshold vector error correction models. Two empirical applications demonstrate the relevance of this new estimator for spatial price transmission analysis.

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Language(s): eng - English
 Dates: 2013-07
 Publication Status: Published in print
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 Rev. Method: Peer
 Identifiers: DOI: 10.1093/ajae/aat006
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Title: American Journal of Agricultural Economics
Source Genre: Journal
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Pages: - Volume / Issue: 95 (4) Sequence Number: - Start / End Page: 900 - 916 Identifier: -