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A NOTE ON LEAST ABSOLUTE DEVIATION ESTIMATION OF A THRESHOLD MODEL

Published online by Cambridge University Press:  15 May 2002

Mehmet Caner
Affiliation:
University of Pittsburgh
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Abstract

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This paper develops the limit law for the least absolute deviation estimator of the threshold parameter in linear regression. In this respect, we extend the literature of threshold models. The existing literature considers only the least squares estimation of the threshold parameter (see Chan, 1993, Annals of Statistics 21, 520–533; Hansen, 2000, Econometrica 68, 575–605). This result is useful because in the case of heavy-tailed errors there is an efficiency loss resulting from the use of least squares. Also, for the first time in the literature, we derive the limit law for the likelihood ratio test for the threshold parameter using the least absolute deviation technique.

Information

Type
Research Article
Copyright
© 2002 Cambridge University Press