This paper aims to evaluate the trade potential of manufactured products between the members of the EU25 in the threshold of its Eastern enlargement. We estimate, for 2002, a cross-section gravity model, whose coefficients will be used to project the “natural” trade relations between them....

Dynamic term structure models (DTSMs) price interest rate derivatives based on the model­ implied fair values of the yield curve, ignoring any pricing residuals on the yield curve that are either from model approximations or market imperfections. In contrast, option pricing in practice often...

We propose a direct and robust method for quantifying the variance risk premium on financial assets. We theoretically and numerically show that the risk-neutral expected value of the return variance, also known as the variance swap rate, is well approximated by the value of a particular...

This paper considers a class of Heath-Jarrow-Morton (1992) term structure models, characterized by time deterministic volatilities for the instantaneous forward rate. The bias that arises from using observed futures yields as a proxy for the unobserved instantaneous forward rate is analyzed. The...

We study the behavior of real exchange rates in a two­country dynamic equilibrium model. In this model, consumers can only consume domestic goods but can invest costlessly in capital stocks of both countries. Nevertheless, transporting goods between the two countries is costly and, hence, the...

This paper presents a 2-regime SETAR model where the process under examination is governed by a long-memory process in the first regime and a short-memory process in the second regime. Persistence properties are studied and methods for locating the threshold parameter are proposed. Such a...

This study aims to analyse the Portuguese economic policy of disinflation through a nominal stabilization policy of the Portuguese escudo. We study the pegging of the Portuguese escudo (PTE) to the Deutsch mark (DM) knowing the reputation of the Bundesbank for its anti- inflationary record and...

We derive fundamental new theory for measuring monetary service flows aggregated over countries within a multicountry economic union. We develop three increasingly restrictive approaches: (1) the heterogeneous agents approach, (2) the multilateral representative agent approach, and (3) the...