We ®nd empirical evidence that in ̄ation, nominal, and real interest rates in the US are trend-stationary with a structural break in both the unconditional mean and the drift rate of a deterministic trend, which occurs shortly after the change in operating procedures of the Fed in September 1979. This ®nding casts some doubts on cointegration tests of the long-run Fisher e€ect conducted in recen...

Given the increasing importance of financing in foreign currency denominated debt, researchers have shown the conditions under which raising capital denominated in a foreign currency becomes feasible. We extend this literature in the context of a multinational corporation (MNC) by modeling the rivalry between equity and debt under a modified general equilibrium framework. We derive (i) internat...

We propose a concept of intraday overreaction characterized by intraday price movements which are corrected within the same trading day. It is a concept of relative overreaction in the sense that the price range within a trading day is large in comparison with the openclose return volatility. As a one-sided concept it allows to distinguish between upward and downward overreaction. A test for ov...

This paper performs multiple-break unit root tests on the data of China’s national and sectoral output and labour productivity, with finite-sample critical values bootstrapped through Monte Carlo simulations. We find strong evidence against the unit-root hypothesis in favour of the segmentedtrend-stationarity alternative. Based on breaking trend functions, the steady-state and transitional grow...

We forecast US GDP and inflation over 1-, 4and 8-step horizons using the dataset from Stock and Watson (2009), with factors, variables, both, and neither. Autometrics handles perfect collinearity and more regressors than observations, enabling all principal components and variables to be included for model selection, jointly with using impulse-indicator saturation (IIS) for multiple breaks. Emp...

We propose tests for structural change in conditional distributions via quantile regressions. To avoid misspecification on the conditioning relationship, we construct the tests based on the residuals from local polynomial quantile regressions. In particular, the tests are based upon the cumulative sums of generalized residuals from quantile regressions and have power against local alternatives ...

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...

Enders and Granger provide critical values to test the null hypothesis of a unit-root against the alternative of threshold adjustment. However, in obtaining their critical values, Enders and Granger did not use a consistent estimate of the threshold nor did they use a lag-augmented data generating process. This note remedies both of these problems. The power of the test statistics using the con...

We assess the progress made by the profession in understanding real exchange rate behavior through a selective and critical, but nonetheless expository, review of the literature. Our reading of the literature leads us to the main conclusions that purchasing power parity might be viewed as a valid long-run international parity condition when applied to bilateral exchange rates obtaining among ma...

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...