This paper derives a method for estimating and testing the Linear Quadratic Adjustment Cost (LQAC) model when the target variable and some of the forcing variables follow I(2) processes. Based on a forward-looking error-correction formulation of the model it is shown how to obtain strongly...

Two-stage-least-squares (2SLS) estimates are biased towards the probability limit of OLS estimates. This bias grows with the degree of over-identification and can generate highly misleading results. In this paper we propose two simple alternatives to 2SLS and...

How should one measure the natural rate of unemployment? This paper proposes a systems procedure as an alternative to NAIRU. The natural rate is treated as an unobserved state variable in a system that includes measurement equations for the unemployment rate, the rate of wage growth and the rate...

This paper addresses the problem of testing for the presence of a stochastic bubble in a time series in the case that the bubble is periodically collapsing so that the asset price keeps returning to the level implied by the market fundamentals. As this is essentially a problem of identifying the...