Testing for Homogeneous Thresholds in Threshold Regression Models

Yoonseok Lee, Yulong Wang

Econometric Theory, October 2022

Yoonseok Lee

Yulong Wang

Economics Department

Center for Policy Research

Research Methods

Econometric Theory

Yoonseok Lee

Yulong Wang

This paper develops a test for homogeneity of the threshold parameter in threshold regression models. The test has a natural interpretation from time series perspectives and can also be applied to test for additional change points in the structural break models.

The limiting distribution of the test statistic is derived, and the finite sample properties are studied in Monte Carlo simulations. We apply the new test to the tipping point problem studied by Card, Mas, and Rothstein (2008, Quarterly Journal of Economics 123, 177–218) and statistically justify that the location of the tipping point varies across tracts.