A sequential procedure for determining the number of regimes in a threshold autoregressive model

Summary In this paper, we propose a sequential method for determining the number of regimes in threshold autoregressive models. The proposed method relies on the superconsistency of sequential threshold estimates and uses general linearity tests to determine the number of thresholds. A simulation study is performed in order to find out the finite‐sample properties of our procedure and to compare it with two other procedures available in the literature. We find that our method works reasonably well for both single and multiple threshold models.