This paper considers a general model which allows for both deterministic and stochastic forms of seasonality, including fractional (stationary and nonstationary) orders of integration, and also incorporating endogenously determined structural breaks. Monte Carlo analysis shows that the suggested procedure performs well even in small samples, accurately capturing the seasonal properties of the s...

In this paper we test for the inclusion of the bid-ask spread in the consumption CAPM, in the UK stock market over the time period of 1980-2000. Two econometric models are used; first, Fisher’s (1994) asset pricing model is estimated by GMM, and secondly, the VAR approach proposed by Campbell and Shiller is extended to include the bid-ask spread. Overall the statistical tests are unable to reje...

This paper presents an overview of some new results regarding an easily implementable Wald test-statistic (EFDF test) of the null hypotheses that a time-series process is I(1) or I(0) against fractional I(d) alternatives, with d ∈ (0, 1), allowing for unknown deterministic components and serial correlation in the error term. Specifically, we argue that the EFDF test has better power properties ...

In this paper, we consider and examine the performance of two-step LM unit root tests with trend-breaks. In the first step, we jointly test for the existence and location of breaks using a maximum F-test. In the second step, we utilize the identified breaks and test for a unit root. A transformation procedure is adopted so that the tests with trend-breaks are invariant to nuisance parameters. W...

Well known encompassing tests are usually difficult to implement because it is difficult to compute the pseudo-true value of the quasi-maximum likelihood estimator. In this paper, we propose a more operational encompassing test that does not involve such pseudo-true value. Instead, the proposed test relies on the “pseudo-true score” which is relatively easier to evaluate. We show that this test...

In this paper, we seek to re-establish the link between the CES production function and neoclassical growth theory. We did so in three dimensions. First, we reviewed the increasing importance of the CES technology in modern dynamic macroeconomics, in expanding not only theory but also in addressing important policy questions. Second, we argued that the importance of the CES function in growth t...

Confidence intervals in econometric time series regressions suffer from notorious coverage problems. This is especially true when the dependence in the data is noticeable and sample sizes are small to moderate, as is often the case in empirical studies. This paper suggests using the studentized block bootstrap and discusses practical issues, such as the choice of the block size. A particular da...

We present an empirical investigation of the hypotheses that exchange rate uncertainty may have an impact on both the volume and variability of trade flows by considering a broad set of industrial countries’ bilateral real trade flows over the period 1980–1998. Similar to the findings of earlier theoretical and empirical research, our first set of results shows that the impact of exchange rate ...

We present an empirical investigation of the hypotheses that exchange rate volatility may have an impact on both the volume and variability of trade flows by considering a broad set of industrial countries’ bilateral real trade flows over the period 1980–1998. Similar to the findings of earlier theoretical and empirical research, our first set of results shows that the impact of exchange rate u...

General unrestricted models (GUMs) may include important individual determinants, many small relevant effects, and irrelevant variables. Automatic model selection procedures can handle perfect collinearity and more candidate variables than observations, allowing substantial dimension reduction from GUMs with salient regressors, lags, non-linear transformations, and multiple location shifts, tog...