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A Threshold Regression Model

Marcel G. Dagenais

Abstract

A special regression model is suggested to analyze economic variables possessing step-like time paths. The dependent variable is assumed not to move until the concerted action of the independent variables and the error term induces it to overcome its reaction threshold. After the theoretical solution is presented, the model is shown to be applicable both to time series, such as newsprint prices, and to cross sections, such as household durable good purchases and plant capacity increases. Finally, computational problems are briefly discussed.