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Estimating a Nonlinear Time Series Model in R

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Estimating a Nonlinear Time Series Model in R

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There are quite a few R pack­ages avail­able for non­lin­ear time series analy­sis, but some­times you need to code your own mod­els. Here is a sim­ple exam­ple to show how it can be done.

The model is a first order thresh­old autoregression:

where e_t is a Gauss­ian white noise series with vari­ance \sigma^2. The fol­low­ing func­tion will gen­er­ate some ran­dom data from this model.

simnlts <- function(n, alpha, beta, r, sigma, gamma, burnin=100)
  # Generate noise
  e <- rnorm(n+burnin, 0, sigma)
  # Create space for y
  y <- numeric(n+burnin)
  # Generate time series
  for(i in 2:(n+burnin))
    if(y[i-1] <= r)
      y[i] <- alpha*y[i-1] + e[i]
      y[i] <- beta*y[i-1] + gamma*e[i]
  # Throw away first burnin values
  y <- ts(y[-(1:burnin)])
  # Return result

The “burn-​​in” para­me­ter allows the first value of the series to be a ran­dom draw from the sta­tion­ary dis­tri­b­u­tion of the process (assum­ing it is stationary).

We will esti­mate the model by min­i­miz­ing the sum of squared errors across both regimes. Other approaches that take account of the dif­fer­ent vari­ances in the two regimes may be bet­ter, but it is use­ful to keep it sim­ple, at least ini­tially. The fol­low­ing func­tion uses a non-​​linear opti­mizer to esti­mate \alpha, \beta and r. To ensure good start­ing val­ues, we begin the opti­miza­tion with \alpha=\beta=0 and set the ini­tial value of r to be the mean of the observed data.

fitnlts <- function(x)
  ss <- function(par,x)
    alpha <- par[1]
    beta <- par[2]
    r <- par[3]
    n <- length(x)
    # Check that each regime has at least 10% of observations
    if(sum(x<=r) < n/10 | sum(x>r) < n/10)
    e1 <- x[2:n] - alpha*x[1:(n-1)]
    e2 <- x[2:n] - beta*x[1:(n-1)]
    regime1 <- (x[1:(n-1)] <= r)
    e <- e1*(regime1) + e2*(!regime1)
  fit <- optim(c(0,0,mean(x)),ss,x=x,control=list(maxit=1000))
  if(fit$convergence > 0)

There are a few things to notice here.

  • I have used a func­tion inside a func­tion. The ss func­tion com­putes the sum of squared errors. It would have been pos­si­ble to define this out­side fitnlts, but as I don’t need it for any other pur­pose it is neater to define it locally.
  • Occa­sion­ally the opti­mizer will not con­verge, and then fitnlts will return miss­ing values.
  • I have avoided the use of a loop by com­put­ing the errors in both regimes. This is much faster than the alternatives.
  • If r is out­side the range of the data, then either \alpha or \beta will be uniden­ti­fi­able. To avoid this prob­lem, I force r to be such that each régime must con­tain at least 10% of the data. This is an arbi­trary value, but it makes the esti­ma­tion more stable.
  • The func­tion being opti­mized is not con­tin­u­ous in the r direc­tion. This will cause gradient-​​based opti­miz­ers to fail, but the Nelder-​​Mead opti­mizer used here is rel­a­tively robust to such problems.
  • This par­tic­u­lar model can be more effi­ciently esti­mated by exploit­ing the con­di­tional lin­ear­ity. For exam­ple, we could loop over a grid of r val­ues (e.g., at the mid-​​points between con­sec­u­tive ordered obser­va­tions) and use lin­ear regres­sion for the other para­me­ters. But the above approach is more gen­eral and can be adapted to other non­lin­ear time series models.

The func­tions can be used as fol­lows (with some exam­ple parameters):

y <- simnlts(100, 0.5, -1.8, -1, 1, 2)

A sim­i­lar approach can be used for other time series models.


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