Despite seven years of economic growth a large gap exists in the wages earned by workers at the top of the earnings scale and those at the bottom. The leading explanation for this growth in wage inequality continues to be the skills-mismatch theory. This theory in part posits that gains in...

We propose a local adaptive multiplicative error model (MEM) accommodating timevarying parameters. MEM parameters are adaptively estimated based on a sequential testing procedure. A data-driven optimal length of local windows is selected, yielding adaptive forecasts at each point in time....