For financial assets whose best quotes almost always change by jumping by the market’s price tick size (one cent, five cents, etc.), this paper proposes an estimator of Quadratic Variation which controls for microstructure effects. It measures the prevalence of alternations, where quotes jump back to their just-previous price. It defines a simple property called “uncorrelated alternation”, whic...

The performance of a kernel HAC estimator depends on the accuracy of the estimation of the normalized curvature, an unknown quantity in the optimal bandwidth represented as the spectral density and its derivative. This paper proposes to estimate it with a general class of kernels. The AMSE of the kernel estimator and the AMSE-optimal bandwidth are derived. It is shown that the optimal bandwidth...

This paper proposes a methodology that combines the use of Schwarz’s BIC in subset autoregression and subset transfer function identification along with the posterior odds ratio test developed by Poskitt & Tremayne (1987) in the context of testing for Granger-causality and cointegration tests. This approach provides a measure for the strength (decisiveness) of causality and cointegration betwee...

In this paper, we estimate a health care demand function for 18 OECD countries for the period 1972-1995. We consider a demand side approach where health expenditure depend on per capita GDP and the relative price of health care. We use panel data unit root and stationarity tests to characterize our data. Then, we test cointegration between our variables with Kao[16] panel data cointegration tes...

The purpose of this paper is to investigate the ability of parameter instability tests in regressions with I(1) processes to discriminate between changes in the cointegrating relationship and changes in the marginal distribution of the regressors. Using annual data for the G-7 countries and the Purchasing Power Parity, we conclude that the regression coefficient between the price level differen...

This paper examines some of the characteristics of the foreign exchange market in the 1920s floating period. Nominal returns appear to exhibit properties consistent with asset prices on modern more well-organized financial markets; i.e. they appear to be well described by martingales and possess persistent time dependent heteroscedasticity. In order to deal with the extreme kurtosis in the exch...

This paper employs Hamilton’s (1989) original Markov-switching model and time-varying Markov-switching model developed by Filardo (1994), respectively, to investigate the business cycle and evaluate the usefulness of the coincident and leading indexes in dating the business cycle and in predicting future GDP in Taiwan. The empirical results do suggest that these two indexes help date the busine...

A weighted replicator dynamic describes how agents switch between a forecast based on fundamentals, a rational bubble forecast and a re‡ective forecast, a weighted average of the former two. If the innovations to the extraneous martingale have a similar magnitude to those of the dividend process and agents are su¢ ciently aggressive in switching forecasting strategies, a signi…cant portion of t...

There has been serious suspicion of a spurious rejection of the unit roots in panel studies of PPP due to the failure to control for cross-sectional dependence. This article presents evidence of mean-reversion in industrial country real exchange rates in a set up that accounts naturally for cross-sectional dependence, is invariant to the benchmark currency and capable of detecting against regim...

Recent evidence suggests that many economic time series are subject to structural breaks, yet little is known about the properties of alternative forecasting methods for such data. This paper proposes a new method for determining the window size that explores the trade-off between bias and forecast error variance to minimize the mean squared forecast error in the presence of breaks in autoregre...