The Bi-parameter Smooth Transition Autoregressive model

The present paper introduces the Bi-parameter Smooth Transition Autoregressive (BSTAR) model that generalizes the LSTR2 model, see Terasvirta (1998). In contrast to the LSTR2 model, which features the symmetric transition function, the BSTAR model is characterized by the asymmetric transition function which implies different local dynamics in the neighborhood of the respective location parameters. An empirical example using the time series of the annual growth rates of the Italian industrial production index is provided.