In this paper we discuss tests for residual cross section dependence in nonlinear panel data models. The tests are based on average pair-wise residual correlation coefficients. In nonlinear models, the definition of the residual is ambiguous and we consider two approaches: deviations of the...

This paper considers forecast averaging when the same model is used but estimation is carried out over different estimation windows. It develops theoretical results for random walks when their drift and/or volatility are subject to one or more structural breaks. It is shown that compared to...

This paper conducts a broad-based comparison of iterated and direct multi-period forecasting approaches applied to both univariate and multivariate models in the form of parsimonious factor-augmented vector autoregressions. To account for serial correlation in the residuals of the multi-period...

We derive optimal weights for Markov switching models by weighting observations such that forecasts are optimal in the MSFE sense. We provide analytic expressions of the weights conditional on the Markov states and conditional on state probabilities. This allows us to study the effect of...

This paper investigates the ability of the adaptive learning approach to replicate the expectations of professional forecasters. For a range of macroeconomic and financial variables, we compare constant and decreasing gain learning models to simple, yet powerful benchmark models. We find that...

It has become almost a stylized fact that after financial crises, economic activity recovers without a rebound in credit. We investigate the relationship between credit and economic activity over the business cycle. In a simple model we show that a rebound in the flow of credit has closer...

This paper considers empirical tests for the contagion of financial crises that address the endogeneity of contagion by using instrumental variable estimation techniques. Two complications in the application to contagion are that the regression model is potentially incoherent and that it...

This paper considers the issue of forecasting financial fragility of banks and insurances using a panel data set of performance indicators, namely distance-to-default, taking unobserved common factors into account. We show that common factors are important in the performance of banks and...

This paper considers the problem of forecasting under continuous and discrete structural breaks and proposes weighting observations to obtain optimal forecasts in the MSFE sense. We derive optimal weights for continuous and discrete break processes. Under continuous breaks, our approach recovers...