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Title: Panel threshold models with interactive fixed effects Authors:  Kunpeng Li - Capital University of Economics and Business (China) [presenting]
Ke Miao - Singapore Management University (Singapore)
Liangjun Su - Singapore Management University (Singapore)
Abstract: Estimation and inference in a panel threshold model is studied in the presence of interactive fixed effects. We study the asymptotic properties of the least squares estimators of the regression parameters in the model in the shrinking-threshold-effect framework. We find that under some conditions the threshold parameter can be estimated at a convergence rate faster than the usual parameter rate so that its estimation has asymptotically negligible role on the estimation of the slope coefficients in the model. The inference on the threshold parameter can be conducted based on a likelihood ratio test statistic as in the cross-sectional or time series setup. We also propose a test for the presence of threshold effect. Monte Carlo simulations suggest that our estimators and test statistics perform well in finite samples. We apply our method to study the effect of financial development on economic growth and find that there is indeed a turning point in the effect for all three measures of financial development when the cross-sectional dependence is properly accounted for.