This paper examines the asymptotic and …nite-sample properties of tests of equal forecast accuracy when the models being compared are overlapping in the sense of Vuong (1989). Two models are overlapping when the true model contains just a subset of variables common to the larger sets of variables included in the competing forecasting models. We consider an out-of-sample version of the two-step ...

One of the approaches to compare forecasting methods is to test whether the risk from a benchmark prediction is smaller than the others. The test can be embedded into a general problem of testing inequality constraints using a one-sided sup functional. Hansen (2005) showed that such tests su¤er from asymptotic bias. This paper generalizes this observation, and proposes a hybrid method to robust...

Motivated by the need of a positive-semidefinite estimator of multivariate realized covariance matrices, we model noisy and asynchronous ultra-high-frequency asset prices in a state-space framework with missing data. We then estimate the covariance matrix of the latent states through a Kalman smoother and Expectation Maximization (KEM) algorithm. Iterating between the two EM steps, we obtain a ...

Article history: Received 16 September 2012 Received in revised form 4 September 2013 Accepted 17 October 2013 Available online 23 October 2013 In this paper we revisit the evidence recently provided by Philippon (2009) about the relationship among bond market's Q, stock market's Q and aggregate investments for the US. Specifically, we analyze the stability of the relationship between aggregate...

Many empirical questions in economics and other social sciences depend on causal effects of programs or policies. In the last two decades much research has been done on the econometric and statistical analysis of the effects of such programs or treatments. This recent theoretical literature has built on, and combined features of, earlier work in both the statistics and econometrics literatures....

Consider a regression model with infinitely many parameters and time series errors. We are interested in choosing weights for averaging across generalized least squares (GLS) estimators obtained from a set of approximating models. However, GLS estimators, depending on the unknown inverse covariance matrix of the errors, are usually infeasible. We therefore construct feasible generalized least s...

The present paper tests for the validity of long-run purchasing power parity (PPP) for seventeen European economies in transition. Analysis is performed following the methodological suggestions expressed in recent studies for PPP. Longrun PPP is initially tested for each economy vis-a-vis the US, using the Johansen cointegration methodology and then for the whole set of countries using the Lars...

This paper confronts exchange rate-trade balance hypotheses derived from the elasticity, absorption/switching and monetary approaches to the balance of payments and short-run disequilibrium effects such as the J and S curves with data from a wide range of developing countries. We find strong evidence that the exchange rate affects the trade balance long-run equilibrium even when money and incom...

This paper develops new methods for testing structural hypotheses based on tests for parameter instability. It is shown that when the structure is of a particular type and its parameters change, predictable patterns of stability and instability in certain empirical relationships will result. These empirical characteristics are contingent on the type of structure involved. The paper develops dif...