We evaluate the properties of mean reversion and mean aversion in asset prices and returns as commonly characterized in the finance literature. The study is undertaken within a class of well-known dynamic stochastic general equilibrium models and shows that the mean reversion/aversion...

This study compares and contrasts the multiple characterizations of mean reversion in financial time series as regards the restrictions they imply. This is accomplished by translating them into statements about an alternative measure, the "Average Crossing Time" or ACT. We argue that the ACT...

The asymptotic distribution of the linear instrumental variables (IV) estimator with empirically selected ridge regression penalty is characterized. The regularization tuning parameter is selected by splitting the observed data into training and test samples and becomes an estimated parameter...

The classical financial models are based on the standard Brownian diffusion-type processes. However, in exhibition of some real market data (like interest or exchange rates) we observe characteristic periods of constant values. Moreover, in the case of financial data, the assumption of normality...

The creation of European Monetary Union (EMU) poses a number of difficult problems for the European Central Bank (ECB). One of the major problems is related to the uncertainty about economic relationships within the euro area. The monetary strategy of the ECB is based on two pillars, one is the...

European Monetary Union will come into existence in 1999. This raises questions related to the monetary policy targets that will be adopted by the European Central Bank (ECB). For both likely candidates, targeting a money aggregate or an inflation target, the existence of a stable money demand...