In this paper, we examine the use of Box-Tiao*s (1977) canonical correlation method as an alternative to likelihood-based inferences for vector error-correction models. It is now well-known that testing of cointegration ranks based on Johansen*s (1995) ML-based method suffers from severe small...

Any research or policy analysis in economics must be consistent with the time-series properties of observed macroeconomic data. Numerous previous studies of such time series reinforce the need to specify correctly a model's multivariate stochastic structure. This paper discusses in detail the...

Monetary policy VARs typically presume stability of the long-run outcomes. We introduce the possibility of switches in the long-run equilibrium in a cointegrated VAR by allowing both the covariance matrix and weighting matrix in the error-correction term to switch. We find that monetary policy...

A general-equilibrium shopping-time model of money demand is used to obtain estimates of some dynamic costs of inflation under alternative monetary policy rules. After examining the welfare implications of steady-state inflation, dynamic welfare costs are evaluated for inflation-targeting and...

This paper argues that inferring long-horizon asset-return predictability from the properties of vector autoregressive (VAR) models on relatively short spans of data is potentially unreliable. We illustrate the problems that can arise by re-examining the findings of Bekaert and Hodrick (1992),...

This paper presents analytical, Monte Carlo, and empirical evidence on combining recursive and rolling forecasts when linear predictive models are subject to structural change. Using a characterization of the bias-variance tradeoff faced when choosing between either the recursive and rolling...

Recent work suggests VAR models of output, inflation, and interest rates may be prone to instabilities. In the face of such instabilities, a variety of estimation or forecasting methods might be used to improve the accuracy of forecasts from a VAR. The uncertainty inherent in any single...

In this paper we present a recursive method for the computation of dynamic competitive equilibria in models with heterogeneous agents and market frictions. This method is based on a convergent operator over an expanded set of state variables. The fixed point of this operator defines the set of...