This paper extends the cross sectionally augmented panel unit root test proposed by Pesaran (2007) to the case of a multifactor error structure. The basic idea is to exploit information regarding the unobserved factors that are shared by other time series in addition to the variable under...

This paper introduces the probabilistic formulation of continuous-time economic models: forward stochastic differential equations (SDE) govern the dynamics of backward-looking variables, and backward SDEs capture that of forward-looking variables. Deep learning streamlines the search for the...

In spatial econometrics literature estimation and inference are carried out assuming that the matrix of spatial or network connections has uniformly bounded absolute column sums in the number of units, n, in the network. This paper relaxes this restriction and allows for one or more units to...

Subjective evaluations are widely used, but call for different contracts from traditional moral-hazard settings. Previous literature shows that contracts require payments to third parties, which real-world contracts rarely use. I show that the implicit assumption of deterministic contracts makes...

This paper extends the transformed maximum likelihood approach for estimation of dynamic panel data models by Hsiao, Pesaran, and Tahmiscioglu (2002) to the case where the errors are cross-sectionally heteroskedastic. This extension is not trivial due to the incidental parameters problem that...

The focus is upon equilibrium real exchange rates, optimal external debt and their interaction, in a world where both the return on investment and the real rate of interest are stochastic variables. These theoretically based measures are applied empirically to answer the following questions:...

We analyze optimal harvesting policy under stochastic price and stock dynamics. We state a set of weak conditions under which the optimal policy can be characterized by a single exercise threshold and show that the value of optimal harvesting and depletion policies can be expressed as the...

Standard explanations for the income heterogeneity within neighborhoods rely on differences of preferences across households and heterogeneity of the housing stock. We propose an alternative and complementary explanation. We construct a stochastic equilibrium sorting model where (1) income is...

We use a Wicksellian single rotation framework to analyze the impact of the intertemporally fluctuating and stochastic mean-reverting interest rate process on the optimal harvesting threshold and thereby the expected length of the rotation period, when forest value is also stochastic following...

Using the Hamilton-Jacobi-Bellman equation, we derive both a Keynes-Ramsey rule and a closed form solution for an optimal consumption-investment problem with labor income. The utility function is unbounded and uncertainty stems from a Poisson process. Our results can be derived because of the...