In complete markets economies (Sandroni [15]), or in economies with Pareto optimal outcomes (Blume and Easley [9]), the market selection hypothesis holds, as long as traders have identical discount factors. Traders who survive must have beliefs that merge with the truth. We show that in...

We employ the Schwartz and Smith (2000) model to explore the dynamics of the UK gas markets. We discuss in detail the short-term and long-term market prices of risk borne by the market players and how deviations from expected cyclical storage affect the short-term market price of risk. Finally,...

This paper describes an approach that accommodates in a coherent way three types of uncertainty when measuring the output gap. These are trend uncertainty (associated with the choice of model and de-trending technique), estimation uncertainty (with a given model) and data uncertainty (associated...

This paper analyses the optimal wage contract when firms face demand uncertainty and workers care about employment stability. Workers choose the firm that offers the highest utility taking into account the future lay-off probabilities; firms choose the wage contract that maximises the residual...

We evaluate the forecast performance of a range of theory-based and atheoretical models explaining exchange rates and interest rates in US, UK and Japan. The decision-making environment is fully described for an investor who optimally allocates portfolio shares to domestic and foreign assets....

A recent revision to the preliminary measurement of GDP(E) growth for 2003Q2 caused considerable press attention, provoked a public enquiry and prompted a number of reforms to UK statistical reporting procedures. In this paper, we compute the probability of “substantial revisions” that are...

In this paper we provide a framework that explains how the market risk premium, defined as the difference between forward prices and spot forecasts, depends on the risk preferences of market players. In commodities markets this premium is an important indicator of the behaviour of buyers and...

This paper analyses the interaction between fiscal and monetary policy using the original Barro and Gordon (1983) model extended to include fiscal policy, dynamics and the level of institutional quality, measured as bureaucratic corruption. It is found that delegating monetary policy to an...

This paper analyses the impact of the emergence of new funds on the portfolio decisions of mutual fund managers who are evaluated on the basis of relative performance within a dynamic model. Recent theoretical literature has pointed to the inefficiencies in portfolio selection caused by relative...