It is widely known that significant in-sample evidence of predictability does not garantuee significant out-of-sample predictability. This is often interpreted as an indiciation that in-sample evidence is likely to be spurious and should be discounted. In this paper we question this conventional...

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

Unit root tests against trend break alternatives are based on the premise that the dating of the trend breaks coincides with major economic events with permanent effects on economic activity, such as wars and depressions. Standard economic theory, however, suggests that these events have large...

Recently financial econometricians have shifted their attention from point and interval forecasts to density forecasts mainly to address the issue of the huge loss of information that results from depicting portfolio risk by a measure of dispersion alone. One of the major problems in this area...

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We construct the optimal regulation contract between a risk-averse principal, such as a small municipality, and a risk-neutral private ''public service'' operator, such as a large multinational firm. With adverse selection, moral hazard and socially costly transfers, we show that the more...

In a simultaneous equations with error components framework, we analyze the institutions-growth relationship. We address individual heterogeneity in cross-country production functions, and endogeneize factor inputs in order to disentangle the direct and indirect effects of institutions on...

In this paper we analyze GMM with semi-weak instruments. This case includes the standard GMM and the nearly-weak GMM. In the nearly-weak GMM the correlation between the instruments and the first order conditions decline at a slower rate than root T. We find an important difference between the...