panel smooth transition regression

The present study was conducted with the aim of investigating the threshold effect of Islamic banking development on economic growth in the member countries of the Organization of Islamic Cooperation. This research is quantitative, in terms of practical purpose, and in terms of the nature and form of implementation, it is descriptive-correlational. Statistical data have been extracted from relevant databases such as the World Bank during the period of 2000-2019 and analyzed using the econometric model of panel smooth transition regression. The results show that in the countries of Islamic cooperation, in the first regime, the effect of Islamic banking, good governance and population on economic growth is negative and significant, and the effect of the added value of the industrial sector is positive and significant. In the second regime, Islamic banking has a positive and significant effect on economic growth, and the added value effect of the industrial sector is also a positive and significant effect. Population variable has a negative and meaningless effect. In the selected countries of Islamic cooperation, in the first regime, Islamic banking and population have a negative and significant effect, and the quality of the government has a positive and significant effect on growth. While the effect of the added value of the industrial sector is negative and meaningless. In the second regime, government spending and the added value of the industrial sector have a positive and significant effect, and Islamic banking and the population have a negative and significant effect on the intensity of economic growth. This result shows the government's attention to improving good governance indicators in the selected countries..

In recent years, the COVID-19 pandemic has imposed considerable harm on economies globally. This situation has prompted researchers to thoroughly examine the issue from different perspectives and view bolstering the resilience of countries as the most effective strategy to address the vulnerabilities. Such efforts can mitigate the harmful effects and negative outcomes of the disease. The susceptibility of economic systems to the shock of the COVID-19 pandemic varies, with some being significantly more vulnerable to its effects. In this context, the greater a country's ability to mobilize its resources against such risks, the more resilient it becomes. Hence, economic resilience is regarded as a comprehensive approach to enhancing the existing capacities and reducing economic vulnerability in the face of various crises and environmental threats. Moreover, economic resilience is shaped by the implementation of economic policies and has an accumulative nature. Individuals and different schools of thought have focused on the concept of resilience within the economic realm, structuring their studies accordingly. Economic resilience emerges as a pervasive criterion in the literature on economic stabilization.In the economic discourse, particular emphasis is placed on assessing the composite index of economic resilience against external shocks, aiming to quantify this notion. This study sets out to investigate how the COVID-19 pandemic has impacted the economic resilience of countries across high, medium and low levels of income. Addressing 150 nations, this research employs the PSTR model over the timeframe spanning 2020 to 2021. The Economic Resilience Index is computed utilizing the Bruegel method for this inquiry. 

The PSTAR (Panel Smooth Transition Autoregressive) model is a powerful tool utilized to analyze nonlinearities and regime shifts in panel data. It extends traditional autoregressive models by allowing for smooth transitions between different states or regimes, thereby capturing complex dynamics in economic time series data.The PSTAR model assumes that the relationship between variables evolves smoothly over time and across different regimes. It is particularly useful in capturing threshold effects, where the impacts of one or more variables on the dependent variable change abruptly beyond a certain threshold level. This is achieved through the specification of transition functions, which determine how the model transitions occur between different regimes based on the values of certain threshold variables. The PSTAR model estimation involves several steps, including the specification of transition functions, estimation of model parameters using maximum likelihood or other suitable methods, and diagnostic checks to assess the model's goodness-of-fit and validity of assumptions. Additionally, we conduct robustness checks and sensitivity analyses to ensure the reliability of our findings.

This study reveals a significant negative impact of the COVID-19 pandemic on the economic resilience of countries across different income levels. Employing a two-regime model, the analysis demonstrates a nonlinear correlation among the variables, suggesting varied adjustment speeds among economic regimes. Specifically, countries with high incomes experience a moderate pace of adjustment, those with moderate incomes adjust slowly, and low-income countries adjust rapidly. This suggests that economic changes in response to the pandemic occur at different speeds across income groups.The COVID-19 pandemic has induced structural and performance alterations in economies worldwide, including increased unemployment, reduced growth, and shifts in consumption and investment patterns. These changes, coupled with challenges such as quarantine restrictions and decreased incomes, have led to considerable adjustments in economic dynamics, varying in speed from one state to another.Overall, economic changes during the pandemic are of significant diversity across countries, affecting consumption and production behaviors, policy frameworks, and international relations. Threshold values, representing critical points of pandemic severity, determine whether economic variables behave linearly or nonlinearly. When the pandemic's impact surpasses these thresholds, economic variables begin shifting to nonlinear regimes.Estimations from the smooth panel regression approach indicate a notable negative effect of the pandemic on economic vulnerability, affecting countries with high, medium, and low incomes alike. Per capita GDP, remittances, and foreign direct investment emerge as key influencers of economic resilience. While per capita GDP decreases during the pandemic for high and medium-income countries, it increases in the second threshold regime and boosts economic resilience. Remittances positively impact economic resilience in high-income countries but negatively affect medium and low-income ones initially, transitioning to positive effects after crossing the threshold. Foreign direct investment initially reduces economic resilience across all income levels but becomes positive and significant in high-income countries after crossing the threshold.In summary, the study underscores the complex interplay between the COVID-19 pandemic and economic resilience, emphasizing the need for tailored policy responses to mitigate its adverse effects across different income groups.Conclusions and Policy Implications: Although the public health system is evolving, the world remains susceptible to shocks caused by contagious diseases that present fundamental challenges to economies. The vulnerability resulting from the COVID-19 pandemic has spurred countries to allocate more funds to ensure economic security and global health. Nations across the globe are working to reduce the economic impact of the COVID-19 crisis through well-balanced policies, seeking to mitigate risks to the society as much as possible. To tackle the COVID-19 crisis, extensive actions are being taken, including sharing knowledge and experiences regarding strategies, policies and improvement plans, examining common responses, and coordinating actions to enhance resilience and effective recovery preparedness. Strengthening communication among policymakers, development planners, and relevant stakeholders, establishing strong multilateral institutions with political support for global health shock coordination, creating fast financial procurement mechanisms for essential goods, increasing investment in disease surveillance at global and regional levels, developing regional production capacities for vaccines, tests and medicines, sharing medical technology and knowledge, and transferring medical technologies are the measures being taken. Additionally, strategic approaches to national improvement, including economic and financial measures, effective financial procurement design, and financial resource mobilization efforts to mitigate the effects of COVID-19, are being pursued. These measures aim to enhance the resilience and sustainability of public health systems and foster systematic research and development for the preparation of effective and safe vaccines against any virus. Therefore, based on the findings of this research and similar studies, policymakers need to focus on strengthening the economic resilience of countries, in addition to implementing other policies aimed at reducing the spread of and preventing the COVID-19 disease. These actions may include policies to strengthen healthcare infrastructure, develop economic and social crisis response plans, and encourage the development of human resources needed to combat the disease and its economic impacts.

The current research provides new evidence regarding the impact of innovation and creative industries on the process of economic wellbeing. In this context, a smooth transition panel regression approach has been utilized for the period from 2013 to 2020. The optimal model for developed countries was estimated with two threshold levels and two transition functions, while for developing countries, it was estimated with two threshold levels and one transition function. In developed countries, the speed of transition from the first limit regime to the second limit regime was equal to 14.0361 and the speed of transfer from the second limit regime to the third regime was equal to 28.2824, which shows that the transition from the first regime to second regime smoother than the transition from the second to the third regime. In developing countries, the speed of transition from the first regime to the second is equal to 25.6488, which indicates a smooth transition from the first regime to the second regime. The results indicate that innovation in developed countries has a significant negative impact on economic welfare in the first regime, but this impact turns positive and significant in the second and third regimes. In developing countries, innovation does not significantly affect economic wellbeing in the first regime, but it has a positive and significant effect in the second regime.

The circumstances following the financial and economic crisis in 2008 revealed some fundamental divergence in the economic literature on the effects of fiscal policy. On one hand, some economists have defended the adapting of countercyclical fiscal policy measures, while, others have expressed doubts about the effectiveness of enacting such fiscal policy measures. This study by using 62 countries’ data over the period 1960-2019, applying panel smooth transition regression, and considering the fiscal multiplier as a transition variable, examines the nonlinear relationship between the explanatory variables and economic growth in one hand, and the behavior of fiscal policy during the recession and expansion among the sample countries, applying LPM approach on the other hand. In addition, the main issue is to examine the size of the fiscal multiplier during the recession. The results show that since fiscal policy shocks have a stronger effect during a recession than an expansion period; hence, asymmetric effects are confirmed. Also, based on the research findings, it is observed that the countercyclical fiscal policy is relatively effective in smoothing production fluctuations, while the procyclical policy worsens production fluctuations. Finally, Estimates in this study indicate a procyclical behavior for developing countries and a countercyclical behavior for developed countries.

Real exchange rate misalignment from its equilibrium level can have negative effect on economies worldwide, especially on developing countries. For this reason, it is important to economic policymakers to make attempts in order to control for any misalignment. As detection of the real exchange rate is a first step to control for its misalignments, this study has explored the effects of the main determinants on real exchange rate within a framework of a non-linear model using data of 120 developing countries over the period 2000-2019. The model, which was specified as a panel smooth transition regression, contained a set of explanatory variables such as productivity index, the ratio of investment to GDP, the ratio of government spending to GDP, trade openness, term of trade and net foreign assets. The empirical results indicated that changes in all aforementioned explanatory variables affected significantly the countries` exchange rates. In addition, the results revealed that existence of various types of exchange rate misalignments, like over/under- valuation of exchange rate, in most countries during the period, even those the intensity of misalignments were different in the countries under consideration. Among them, Iran experienced the vast fluctuations in the real exchange rate by 2002, while the less deviation from the equilibrium rate happened in the rest of the period. The reason for such misalignment has been typically based on the overvaluation and undervaluation of the domestic currency.

The main purpose of this paper is to investigate the nonlinear relationship betweentypes of intra-industry trade and inflation rate using the panel smooth transition regression model for selected developing countries during the period 2001-2016. In the framework of new trade theories, the relationship between intra-industry trade and inflation rate is not definite and clear, and the relationship depends on market structure, product differentiation and economies of scale and other factors such as tradeliberalization, exchange rate pass through, government size and human capital. For examining the relationship between types of intra-industry trade and inflation rate, two empirical models each in four cases have been used. In general, the results show that increases in vertical and horizontal intra industry trades reduce inflation rate which confirms the results of Krugman studies (1981, 1979). An increase in inflation also reduces vertical and horizontal intra-industry trades. According to the obtained results, it seems that enhancing intra-industry trade, especially horizontal one could improve foreign trade as well as control inflation.

In macroeconomics, the Okun's Law and Verdoorn's Law are used as methods for studying the relationship between economic growth and unemployment and employment. The necessity of studying these two laws together, in a threshold econometric model and considering to regional and spatial conditions of variables, can have more effective results in labor market policies. Therefore, in this study, due to the importance of employment and unemployment issue in Iran, have been investigated economic growth thresholds in the Okun's and Verdoorn's Law, using Panel Smooth Transition Regression and considering to spatial and non-spatial dimensions of variables. The results of model estimation for 30 Iranian provinces of during the period of 2005-2017 show that unemployment response to changes in production growth was higher than employment, this is true not only in non-spatial state, but also in spatial state and calculation of proximity matrix in economic growth. In addition, the results in spatial state than non-spatial state with stronger and faster changes, which is evidence of regional labor markets impact and macroeconomic situation and unbalanced development in each region, which has led to overflow in other areas. Of course, these effects, with crossed of threshold and entering second regime, have led to improvement in the labor market to increase employment and reduce unemployment, but effects of economic growth more have been on reducing unemployment than employment growth.

The relationship between inflation and economic growth is a contentious issue. The present study aimed to test the hypothesis that the relationship between inflation and economic growth is nonlinear. The study involves D8 countries over the period of 1994 through 2015. Panel Smooth Transition Regression (PSTR) model is employed to estimate the threshold of inflation and its effects on economic growth. The study finds that there exists a statistically significant negative relationship between inflation and growth for the inflation rates above the threshold level of 3.3%, above which inflation starts impeding economic growth in D8 countries. The results indicate that there are two transition functions, each of which has an inflation threshold. In addition, in this study, the elasticity of economic growth was calculated for these countries.

Banking stability is considered as one of the most important economic topics of every country. Increasing share of private banks is a factor which can influence banking stability. This paper investigates the relationship between increasing share of private banks and banking stability across different levels of institutional quality in Iran and using unbalanced panel dataset. Accordingly, the generalized method of moments and a panel smooth transition regression model were used to estimate. The results obtained through the generalized method of moments indicated that increasing share of private banks, is negatively associated with bank stability. Furthermore, an improvement of the institutional quality can reduce the adverse influence of increasing share of private banks on bank stability. The results obtained through the use of the panel threshold regression model further revealed that institutional quality has a threshold value which can affect the relationship between share of private banks and bank stability.

The aim of this study is to investigate nonlinear effects of fiscal decentralization on inflation in the Hybrid New Keynesian Phillips curve framework in Iran. To meet this end, using the data of 30 provinces during 2005 to 2012 and Panel Smooth Transition Regression (PSTR), the relationship between fiscal decentralization and inflation has been examined. The results show that the effect of fiscal decentralization on inflation is asymmetric and depends on the fiscal decentralization level; So that, by increasing the level of fiscal decentralization, the inflation rate was first reduced and then increased. The results of other parameters estimation also show that output gap, inflation lag and inflation expectations have a positive and asymmetric impact on the current inflation rate.