The focus of this article is how a non‐zero risk premium affects an economic agent's optimal hedging decision when exposed to a nonmarketed event. The analysis is not confined to the optimal use of one particular hedging instrument, rather, the optimal payoff based on the agent's preferences...

By using a dynamic factor model, we can substantially improve the reliability of real-time output gap estimates for the U.S. economy. First, we use a factor model to extract a series for the common component in GDP from a large panel of monthly real-time macroeconomic variables. This series is...