The purpose of the present paper is to analyse a simple bubble model suggested by Blanchard and Watson. The model is defined by y(t) =s(t)?y(t-1)+e(t), t=1,…,n, where s(t) is an i.i.d. binary variable with p=P(s(t)=1), independent of e(t) i.i.d. with mean zero and finite variance. We take ?1...

The purpose of the present paper is to analyse a simple bubble model suggested by Blanchard and Watson. The model is defined by y(t) =s(t)¿y(t-1)+e(t), t=1,…,n, where s(t) is an i.i.d. binary variable with p=P(s(t)=1), independent of e(t) i.i.d. with mean zero and finite variance. We take ¿1...

The purpose of the present paper is to analyse a simple bubble model suggested by Blanchard and Watson. The model is defined by y(t) =s(t)ρy(t-1) ε(t), t=1,…,n, where s(t) is an i.i.d. binary variable with p=P(s(t)=1), independent of ε(t) i.i.d. with mean zero and finite variance. We take...

This paper studies cointegration in non-linear error correction models characterized by discontinuous and regime-dependent error correction and variance specifications. In addition the models allow for autoregressive conditional heteroscedasticity (ARCH) type specifications of the variance. The...

We address the IGARCH puzzle by which we understand the fact that a GARCH(1,1) model fitted by quasi maximum likelihood estimation to virtually any financial dataset exhibit the property that alpha^hat + beta^hat is close to one. We prove that if data is generated by certain types of continuous...