New method accurately determines number of regimes in economic models.
The article presents a method to figure out how many different patterns exist in a type of mathematical model called threshold autoregressive models. The researchers use a tool called smooth transition autoregression to help with this. They test the smooth transition model to see how many patterns, or "regimes," are present in the data. Through simulations, they find that their method works well for both simple and complex models with multiple patterns.
