In this article, we develop a general method for testing threshold effects in regression models, using sup-likelihood-ratio (LR)-type statistics. Although the sup-LR-type test statistic has been considered in the literature, our method for establishing the asymptotic null distribution is new and nonstandard. The standard approach in the literature for obtaining the asymptotic null distribution requires that there exist a certain quadratic approximation to the objective function. The article provides an alternative, novel method that can be used to establish the asymptotic null distribution, even when the usual quadratic approximation is intractable. We illustrate the usefulness of our approach in the examples of the maximum score estimation, maximum likelihood estimation, quantile regression, and maximum rank correlation estimation. We establish consistency and local power properties of the test. We provide some simulation results and also an empirical application to tipping in racial segregation. This article has supplementary materials online.
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Theory and Methods
Testing for Threshold Effects in Regression Models
Sokbae Lee Sokbae Lee is Associate Professor, Department of Economics, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul, 151-742, Republic of Korea, and International Fellow, Centre for Microdata Methods and Practice, Institute for Fiscal Studies, 7 Ridgmount Street, London, WC1E 7AE, U.K. . Myung Hwan Seo is Lecturer, Department of Economics, London School of Economics, Houghton Street, London, WC2A 2AE, U.K. . Youngki Shin is Assistant Professor, Department of Economics, University of Western Ontario, 1151 Richmond Street N, London, ON N6A 5C2, Canada . We would like to thank Jesse Rothstein for providing the data used in the article and also thank two referees and an associate editor for their helpful comments. Lee thanks the Economic and Social Research Council for the ESRC Centre for Microdata Methods and Practice (RES-589-28-0001) and the European Research Council for the research grant (ERC-2009-StG-240910-ROMETA). Shin thanks the Social Sciences and Humanities Research Council of Canada (410-2010-0345) for the research grant., Myung Hwan Seo Sokbae Lee is Associate Professor, Department of Economics, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul, 151-742, Republic of Korea, and International Fellow, Centre for Microdata Methods and Practice, Institute for Fiscal Studies, 7 Ridgmount Street, London, WC1E 7AE, U.K. . Myung Hwan Seo is Lecturer, Department of Economics, London School of Economics, Houghton Street, London, WC2A 2AE, U.K. . Youngki Shin is Assistant Professor, Department of Economics, University of Western Ontario, 1151 Richmond Street N, London, ON N6A 5C2, Canada . We would like to thank Jesse Rothstein for providing the data used in the article and also thank two referees and an associate editor for their helpful comments. Lee thanks the Economic and Social Research Council for the ESRC Centre for Microdata Methods and Practice (RES-589-28-0001) and the European Research Council for the research grant (ERC-2009-StG-240910-ROMETA). Shin thanks the Social Sciences and Humanities Research Council of Canada (410-2010-0345) for the research grant. & Youngki Shin Sokbae Lee is Associate Professor, Department of Economics, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul, 151-742, Republic of Korea, and International Fellow, Centre for Microdata Methods and Practice, Institute for Fiscal Studies, 7 Ridgmount Street, London, WC1E 7AE, U.K. . Myung Hwan Seo is Lecturer, Department of Economics, London School of Economics, Houghton Street, London, WC2A 2AE, U.K. . Youngki Shin is Assistant Professor, Department of Economics, University of Western Ontario, 1151 Richmond Street N, London, ON N6A 5C2, Canada . We would like to thank Jesse Rothstein for providing the data used in the article and also thank two referees and an associate editor for their helpful comments. Lee thanks the Economic and Social Research Council for the ESRC Centre for Microdata Methods and Practice (RES-589-28-0001) and the European Research Council for the research grant (ERC-2009-StG-240910-ROMETA). Shin thanks the Social Sciences and Humanities Research Council of Canada (410-2010-0345) for the research grant.
Pages 220-231
Received 01 Dec 2009
Published online: 01 Jan 2012
Theory and Methods
Testing for Threshold Effects in Regression Models
Sokbae Lee Sokbae Lee is Associate Professor, Department of Economics, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul, 151-742, Republic of Korea, and International Fellow, Centre for Microdata Methods and Practice, Institute for Fiscal Studies, 7 Ridgmount Street, London, WC1E 7AE, U.K. . Myung Hwan Seo is Lecturer, Department of Economics, London School of Economics, Houghton Street, London, WC2A 2AE, U.K. . Youngki Shin is Assistant Professor, Department of Economics, University of Western Ontario, 1151 Richmond Street N, London, ON N6A 5C2, Canada . We would like to thank Jesse Rothstein for providing the data used in the article and also thank two referees and an associate editor for their helpful comments. Lee thanks the Economic and Social Research Council for the ESRC Centre for Microdata Methods and Practice (RES-589-28-0001) and the European Research Council for the research grant (ERC-2009-StG-240910-ROMETA). Shin thanks the Social Sciences and Humanities Research Council of Canada (410-2010-0345) for the research grant., Myung Hwan Seo Sokbae Lee is Associate Professor, Department of Economics, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul, 151-742, Republic of Korea, and International Fellow, Centre for Microdata Methods and Practice, Institute for Fiscal Studies, 7 Ridgmount Street, London, WC1E 7AE, U.K. . Myung Hwan Seo is Lecturer, Department of Economics, London School of Economics, Houghton Street, London, WC2A 2AE, U.K. . Youngki Shin is Assistant Professor, Department of Economics, University of Western Ontario, 1151 Richmond Street N, London, ON N6A 5C2, Canada . We would like to thank Jesse Rothstein for providing the data used in the article and also thank two referees and an associate editor for their helpful comments. Lee thanks the Economic and Social Research Council for the ESRC Centre for Microdata Methods and Practice (RES-589-28-0001) and the European Research Council for the research grant (ERC-2009-StG-240910-ROMETA). Shin thanks the Social Sciences and Humanities Research Council of Canada (410-2010-0345) for the research grant. & Youngki Shin Sokbae Lee is Associate Professor, Department of Economics, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul, 151-742, Republic of Korea, and International Fellow, Centre for Microdata Methods and Practice, Institute for Fiscal Studies, 7 Ridgmount Street, London, WC1E 7AE, U.K. . Myung Hwan Seo is Lecturer, Department of Economics, London School of Economics, Houghton Street, London, WC2A 2AE, U.K. . Youngki Shin is Assistant Professor, Department of Economics, University of Western Ontario, 1151 Richmond Street N, London, ON N6A 5C2, Canada . We would like to thank Jesse Rothstein for providing the data used in the article and also thank two referees and an associate editor for their helpful comments. Lee thanks the Economic and Social Research Council for the ESRC Centre for Microdata Methods and Practice (RES-589-28-0001) and the European Research Council for the research grant (ERC-2009-StG-240910-ROMETA). Shin thanks the Social Sciences and Humanities Research Council of Canada (410-2010-0345) for the research grant.