We consider a general class of nonlinear optimal policy problems involving forward-looking constraints (such as the Euler equations that are typically present as structural equations in DSGE models), and show that it is possible, under regularity conditions that are straightforward to check, to...

The standard regression approach to modeling return predictability seems too restrictive in one way but too lax in another. A predictive regression models expected returns as an exact linear function of a given set of predictors but does not exploit the likely economic property that innovations...

This paper develops a novel approach for estimating latent state variables of Dynamic Stochastic General Equilibrium (DSGE) models that are solved using a second-order accurate approximation. I apply the Kalman filter to a state-space representation of the second-order solution based on the...

Multivariate unobserved components (structural) time series models are fitted to annual post-war observations on real income per capita in countries in the euro zone. The aim is to establish stylized facts about convergence as it relates both to long-run income levels and to cycles. The analysis...

In this paper I explore whether knowledge of the time-series properties of premia in the pricing of forward foreign exchange can be usefully exploited in forecasting future spot exchange rates. I use signal-extraction techniques, based on recursive application of the Kalman filter, to identify...

In this study, we perform a quantitative assessment of the role of money as an indicator variable for monetary policy in the euro area. We document the magnitude of revisions to euro area-wide data on output, prices and money, and find that monetary aggregates have a potentially significant role...

In this paper, we implement a methodology to identify and measure premia in the pricing of forward foreign exchange. The methodology involves application of signal-extraction techniques from the engineering literature. Diagnostic tests indicate that these methods are quite successful in...

If some consumers are liquidity-constrained, aggregate consumption should be ‘excessively sensitive’ to credit conditions as well as to income. Moreover, the ‘excess sensitivity’ may vary over time. Using data for Canada, France, Japan, the United Kingdom and the United States, we find a...

This Paper estimates a small New-Keynesian model with imperfect information and optimal discretionary policy using data for the euro area. The model is used to assess the usefulness of monetary aggregates and unit labour costs as information variables for monetary policy. The estimates reveal...