We show how to construct a composite Hidden Markov Model (HMM) to calculate real-time recession probability, using the jubilee and ldhmm packages in R. The input data is the unemployment rate (UNRATE) which is released monthly by the U.S. government. There are two sub-models: The one-year...

This paper provides an empirical investigation of the wage, price and unemployment dynamics that have taken place in Spain during the last two decades. The aim of this paper is to shed light on the impact of the European economic integration on Spanish labour market and the convergence to a...

In a general jump-diffusion Radon-Nikodym setup with stochastic Girsanov processes, we derive optimal equivalent probability measures. Optimality is measured in terms of minimum relative entropy and also by more general divergence concepts. We further prove an anticipative sufficient stochastic...

Although survey-based point predictions have been found to outperform successful forecasting models, corresponding variance forecasts are frequently diagnosed as heavily distorted. Forecasters who report inconspicuously low ex-ante variances often produce squared forecast errors that are much...

Although survey-based point predictions have been found to outperform successful forecasting models, corresponding variance forecasts are frequently diagnosed as heavily distorted. Forecasters who report inconspicuously low ex-ante variances often produce squared forecast errors that are much...

The spillover index introduced by Diebold and Yilmaz (Economic Journal, 2009, vol. 119, pp. 158-171) is widely used in the analysis of financial market interlinkages. Abrupt increases in the spillover index are thought to be associated with systemic events but formal statistical support for this...

This paper presents a new model for term risk, yield curve, and credit risk in spreads in a unified approach. The originality lies in the structuring of the Poisson stochastic of risk in a form suitable for finding the differential equation for the yield curve and its spreads as the Poisson...

We propose a new Stochastic Dominance (SD) criterion based on standard risk aversion, which assumes decreasing absolute risk aversion and decreasing absolute prudence. To implement the proposed criterion, we develop linear systems of optimality conditions for a given prospect relative to a...

This paper extends quantile factor analysis to a probabilistic variant that incorporates regularization and computationally efficient variational approximations. By means of synthetic and real data experiments it is established that the proposed estimator can achieve, in many cases, better...

This paper proposes Pearson-type statistics based on implied probabilities to detect structural change. The class of generalized empirical likelihood estimators (see Smith (1997)) assigns a set of probabilities to each observation such that moment conditions are satisfied. These restricted...