This paper analyzes the ability of both economic variables and moving-average rules to forecast the monthly U.S. equity premium using out-of-sample tests for 1960–2008. Both approaches provide statistically and economically significant out-of-sample forecasting gains, which are concentrated in U.S. business-cycle recessions. Nevertheless, economic variables and moving-average rules capture diff...

We consider approximating a multivariate regression function by an affi ne combination of one-dimensional conditional component regression functions. The weight parameters involved in the approximation are estimated by least squares on the first-stage nonparametric kernel estimates. We establish asymptotic normality for the estimated weights and the regression function in two cases: the number ...

We study a partially linear varying coefficient model where the regressors are generated by the multivariate unit root I(1) processes. The influence of the explanatory vectors on the response variable satisfies the semiparametric partially linear structure with the nonlinear component being functional coefficients. The profile likelihood estimation methodology with the first-stage local polynom...

We examine business cycle synchronizations between the euro area and the new and candidate countries of the EU. We utilize a bivariate VAR-GARCH specification with a smoothly time-varying correlation that allows for structural changes in the degree of co-movement between the cyclical components of monthly industrial production. After the application of a Lagrange Multiplier statistic that tests...

This paper employs non-parametric specification tests developed in Hong and Li (2005) to evaluate several one-factor reduced-form credit risk models for actual default intensities. Using estimates for actual default probabilities provided by Moody’s KMV from 1994 to 2005 for 106 U.S. firms in seven industry groups, we strongly reject popular univariate affine model specifications. As a good com...

We propose an extension of the CPPI method, which is based on conditional floors. In this framework, we examine in particular the margin based strategies. This method allows to keep part of the past gains and to protect the portfolio value against future high drawdowns of the financial market. However, as for the standard CPPI method, the investor can benefit from potential market rises. To con...

We extend the New Keynesian Monetary Policy literature relaxing the assumption that the decisions are taken by a single policymaker, considering instead that monetary policy decisions are taken collectively in a committee. We introduce a Monetary Policy Committee (MPC), whose members have different preferences between output and inflation variability and have to vote on the level of the interes...

Nonlinear Adjustment to Purchasing Power Parity in the post-Bretton Woods Era Christopher F. Baum Department of Economics Boston College John T. Barkoulas Department of Economics and Finance Louisiana Tech University Mustafa Caglayan Department of Economics and Finance University of Durham, UK This paper models the dynamics of adjustment to long-run PPP over the post-Bretton Woods period in a n...

The consumption Euler equation implies that the output growth rate and the real interest rate are of the same order of integration; i.e., if the real interest rate is I(1), then so is the output growth rate and hence log output is I(2). To estimate the natural rates and gaps of macroeconomic variables jointly, this paper develops the multivariate Beveridge–Nelson decomposition with I(1) and I(2...

This paper examines types of cointegration for bivariate seasonal time series, namely seasonal cointegration, periodic cointegration and nonperiodic cointegration. The admissable form(s) for any cointegration is shown to depend crucially on the univariate unit root properties of the series. When both processes are (conventionally) integrated, only nonperiodic cointegration is possible. Periodic...