We develop a state space framework for estimating term structure models, where latent Markovian state variables are mapped non-linearly into observable market data. The measurement equation of our framework is explicitly constructed such that it takes raw market prices and rates as direct...

This paper proposes a new way to compute a coincident and a leading index of economic activity. The method provides a unified approach for the selection of the coincident and the leading variables, for averaging them into coincident and leading indexes and for the identification of turning...

This note summarizes some technical issues relevant to the use of the idea of excess return in empirical modelling. We cover the case where the aim is to construct a measure of expected return on an asset and a model of the CAPM type is used. We review some of the problems and show examples...

This paper analyzes identification conditions, and proposes an estimator, for a dynamic factor model where the idiosyncratic components are allowed to be mutually non-orthogonal. This model, which we call the generalized dynamic factor model, is novel to the literature, and generalizes the...

Generalizing Cox, Ingersoll, and Ross (1979), this paper defines the stochastic duration of a bond in a general multi-factor diffusion model as the time to maturity of the zero-coupon bond with the same relative volatility as the bond. Important general properties of the stochastic duration...

We consider interest rate models where the forward rates are allowed to be driven by a multidimensional Wiener process as well as by a marked point process. Assuming a deterministic volatility structure, and using ideas from systems and control theory, we investigate when the input-output map...

This paper proposes a panel data framework for tests of affine models of the term structure of interest rates which cover equilibrium (or endogenous) models as well as extended (or exogenous, evolutionary) models. The econometric model pools yield curve data for different moments in time. Since...

The factor GARCH model of Engle (1987) and the latent factor ARCH model of Diebold and Nerlove (1989) have become rather popular multivariate volatility parametriza-tions due to their parsimony, and the commonality in volatility movements across different financial series. Nevertheless, there is...

The floating of a number of European currencies in 1992-93 created a new body of data on risk premia on floating exchange rates. In this paper, excess returns to investments in SEK, NOK, FIM, GBP, ITL and EPT against the DEM are investigated. We model the risk premia as functions of time varying...

An arbitrage-free two-factor model is presented, which is driven by the short rate and the consol yield, and which ensures log-normal short rate and positive rates. The market price of an arbitrary (discrete) set of discount bonds is recovered by construction, and an arbitrary degree of...