The relationship between interest rates and exchange rates is puzzling and poorly understood. But under some standard assumptions, interest rates can be adjusted to smooth real exchange rate movements at the possible price of increased volatility in other variables. In New Zealand, estimates...

This paper establishes an inequality that may be used to test the null hypothesis that a stock price equals the expected present discounted value of its dividend stream, with a constant discount rate. The inequality states that if this hypothesis is true, the variance of the innovation in the...

The COVID-19 pandemic has led to enormous movements in economic data that strongly affect parameters and forecasts obtained from standard VARs. One way to address these issues is to model extreme observations as random shifts in the stochastic volatility (SV) of VAR residuals. Specifically, we...