This paper demonstrates that long memory leads to spurious rejection of the linearity hypothesis, when a STAR specification constitutes the alternative.

The LM type linearity test for STAR nonlinearities is severely distorted when the process is governed by conditional heteroskedasticity. In order to correct the test we propose a parametric bootstrap. It is shown, by means of Monte Carlo methods, that the bootstrap test is almost exact.

This paper considers the modelling and forecasting of the Icelandic business cycle. The method of selecting monthly variables, coincident and leading, that mimic the cyclical behavior of the quarterly GDP is described. The general business cycle is then modelled by a vector autoregressive, VAR,...

This paper considers testing the unit root hypothesis against a smooth transition autoregressive model as the alternative. The model specification makes it possible to discriminate between nonstationary random walk and stationary nonlinear processes. Some new limit results are presented,...

We demonstrate how the introduction of liability-side feedbacks affects the properties of a quantitative model of systemic risk. The preliminary version of the model, which is still in its development phase, is based on detailed balance sheets for UK banks and encompasses macro-credit risk,...

This paper focuses on the Stock and Watson methodology to fore- cast the future state of the business cycle in the Icelandic economy. By selecting variables available on a monthly basis that mimic the cyclical behaviour of the quarterly GDP, coincident and leading vari- ables are identi?ed. A...

This paper contains a Lagrange multiplier test of the hypothesis that the covariance matrix of a multivariate time series model is constant over time. It is further assumed that under the alternative, the error variances are time-varying whereas the correlation remain constant over time. Under...