It is demonstrated that the monetary model of exchange rates is better than the random walk in out-of-sample forecasting if forecasting accuracy is measured by metrics that take into account the magnitude of the forecasting errors and the ability of the model to predict the direction of change....

A continuous-time dynamic interpolation method for deriving high-frequency data is illustrated by deriving monthly data from quarterly data on two US macroeconomic variables: industrial production as a flow variable and the money supply as a stock variable. Analysis of the actual and...

This note presents some empirical evidence on the presence of nonlinear adjustment in the PPP relationship. Nonlinearities are shown to be captured by a polynomial in the error correction term. It is also shown that there is some evidence for PPP when the hypothesis is tested over the period of...

The maturity effect is re-examined using the S&P 500 futures contract. A model is estimated in which daily volatility, measured on the basis on intraday data, is determined by its previous value and the number of days remaining to maturity. The estimation results do not support the maturity...

In this paper it is shown that obtaining equally effective forward hedging and money market hedging implies and is implied by the validity of covered interest parity. This proposition is demonstrated by constructing combined positions consisting of long exposures on five currencies and short...

This note addresses some theoretical and econometric aspects of modelling addictive consumption. We show that the solution to the optimization problem leads to a specification of the reduced form equation which is different from what has been estimated in the literature. We also demonstrate that...

The cyclical behaviour of the trade balance is examined using quarterly data for eight countries covering the period 1960:1-1995:3. Two methods are employed: the calculation of the correlation coefficient between the HP-filtered series and the estimation of a structural time series model. Both...

This paper presents a test of the P-Star model using US quarterly data over the period 1951:1-1991:4. The basic formulation of the P-Star model, which is derived from the quantity theory of money, is manipulated to obtain an equation for the price level in terms of a stochastic trend and the...

Empirical evidence on capital market integration in Europe is presented by testing for mean reversion in the real interest differentials of seven European countries vis-a-vis Germany. The tests overwhelmingly reject the null hypothesis of random walk in the real interest rate differentials,...

This paper examines the cyclical behaviour of output, money, stock prices and interest rates using annual US data covering the period 1900-91. The cyclical components are extracted from a seemingly unrelated time series equations model. The cyclical relationships are subsequently assessed by...