Systems and methods for operating an engine operated by a controller that has a capacity to determine whether or not misfire occurs in the engine are presented. In one example, an operating region of the engine is broken into a plurality of zones and a misfire threshold level is dynamically provided for each of the plurality of zones based on slowly updated zone-level statistical parameters and quickly updated buffer-level parameters. The real-time dynamic misfire thresholds provide a basis for determining misfire within the engine.