Urban structures and urban growth rates are highly persistent. This has far-reaching implications for the optimal size and timing of new construction. We prove that rational developers postpone construction not because prospects are gloomy, but because they are bright. The slow mean reversion in...

We consider the problem of tracking latent time-varying parameter vectors under model misspecification. We analyze implicit and explicit score-driven (ISD and ESD) filters, which update a prediction of the parameters using the gradient of the logarithmic observation density (i.e., the score). In...

This article establishes the Poisson optional stopping times (POST) method by Lange et al. (2020) as a near-universal method for solving liquidity-constrained American options, or, equivalently, penalised optimal-stopping problems. In this setup, the decision maker is permitted to "stop", i.e....

We propose a novel observation-driven modeling framework that allows for time variation in the model's parameters using a proximal-parameter (ProPar) update. The ProPar update is the solution to an optimization problem that maximizes the logarithmic observation density with respect to the...

We explore how optimal emission abatement trajectories are affected by dynamic characteristics of greenhouse-gas emitting systems, such as inertia, induced innovation, and pathdependency, by formulating a compact and analytically tractable model with stylized damage assumptions to derive the...

Score-driven models have been applied in some 400 published articles over the last decade. Much of this literature cites the optimality result in Blasques et al. (2015), which, roughly, states that sufficiently small score-driven updates are unique in locally reducing the Kullback-Leibler (KL)...

We use Google search data with the aim of predicting unemployment, CPI and consumer confidence for the US, UK, Canada, Germany and Japan. Google search queries have previously proven valuable in predicting macroeconomic variables in an in-sample context. To our knowledge, the more challenging...

Induced innovation and associated issues of path dependence and inertia are of critical importance in the transition to a carbon free economy. We develop a model that, instead of modeling these processes themselves, models the implications of these characteristics and in the process allows us to...

We compute joint sovereign default probabilities as coincident systemic risk indicators. Instead of commonly used CDS spreads, we use government bond yield data which provide a longer data history. We show that for the more recent sample period 2008--2015, joint default probabilities based on...

We characterize the equilibrium of a search model with a continuum of job and worker types, wage bargaining, free entry of vacancies and on-the-job search. The decentralized economy with monopsonistic wage setting yields too many vacancies and hence too low unemployment compared to first best....