This paper shows that price level trends in many of the EMU countries evolve with different patterns and that these patterns will not converge in the long-run. We propose that the hypothesis of price convergence should be evaluated and tested employing the relative prices. To this aim, we: (i)...

Computing the gaussian likelihood for a nonstationary state-space model is a difficult problem which has been tackled by the literature using two main strategies: data transformation and diffuse likelihood. The data transformation approach is cumbersome, as it requires nonstandard filtering. On...

This paper discusses how to specify the order of a state-space model. To do so, we start by revising existing approaches and find in them two basic shortcomings: (i) some of them have a poor performance in short samples and (ii) most of them are not robust, meaning that their performance...

This paper discusses how to specify an observable high-frequency model for a vector of time series sampled at high and low frequencies. To this end we first study how aggregation over time affects both the dynamic components of a time series and their observability, in a multivariate linear...