This paper documents the existence of a slowly evolving trend in the dividend-price ratio, dpt, determined by a demographic variable, MY: the middle-aged to young ratio. Deviations of dpt from this long-run component explain transitory but persistent fluctuations in stock market returns. The...

It is standard in applied work to select forecasting models by ranking candidate models by their prediction mean squared error (PMSE) in simulated out-of-sample (SOOS) forecasts. Alternatively, forecast models may be selected using information criteria (IC). We compare the asymptotic and...

Recently, it has been suggested that macroeconomic forecasts from estimated DSGE models tend to be more accurate out-of-sample than random walk forecasts or Bayesian VAR forecasts. Del Negro and Schorfheide(2013) in particular suggest that the DSGE model forecast should become the benchmark for...

Does economic theory help in forecasting key macroeconomic variables? This article aims to provide some insight into the question by drawing lessons from the literature. The definition of "economic theory" includes a broad range of examples, such as accounting identities, disaggregation and...

Many users of structural VAR models are primarily interested in learning about the shape of structural impulse response functions. This requires joint inference about sets of structural impulse responses, allowing for dependencies across time as well as across response functions. Such joint...

This paper considers the problem of model uncertainty in the case of multi-asset volatility models and discusses the use of model averaging techniques as a way of dealing with the risk of inadvertently using false models in portfolio management. Evaluation of volatility models is then considered...

Time series models are often adopted for forecasting because of their simplicity and good performance. The number of parameters in these models increases quickly with the number of variables modelled, so that usually only univariate or small-scale multivariate models are considered. Yet, data...