One of the key inputs for inflation targeting regime is the right identification of inflationary or disinflationary pressures. These pressures are usually approximated by the output gap. In this paper we provide an estimation of the Peruvian output gap using a multivariate unobserved component...

The single source of error state space Vector Simple Exponential Smoothing model is introduced. A hypothesis free two-stage methodology that detects and defines the reduced rank of a smoothing matrix is proposed. A singular value decomposition of the smoothing matrix forms the basis of both stages

The new monetary policy implemented in Uruguay in July 2002, rests on the existence of a stable relationship between the intermediate monetary aggregate and the price level, particularly during rough times, such as financial crises (1982-83; 2001-02). This paper analyzes the stability of...

We extend the standard specification of the market price of risk for affine yield models of the term structure of interest rates, and estimate several models using the extended specification. For most models, the extended specification fits US data better than standard specifications, often with...

Evaluation of forecast optimality in economics and finance has almost exclusively been conducted under the assumption of mean squared error loss. Under this loss function optimal forecasts should be unbiased and forecast errors should be serially uncorrelated at the single period horizon with...

In this paper we investigate portfolio coskewness using a quadratic market model as return generating process. It is shown that portfolios of small (large) firms have negative (positive) coskewness with market. An asset pricing model including coskewness is tested through the restrictions it...

A leading explanation of aggregate stock market behavior suggests that assets are priced as if there were a representative investor whose utility is a power function of the difference between aggregate consumption and a "habit" level, where the habit is some function of lagged and (possibly)...

Under the squared error loss, the optimal forecast is the conditional mean, and the one-step forecast error is a martingale difference (MD). The one-step forecast error forms the conditional moment condition obtained from the loss derivative with respect to the forecast. Similarly, under a...

Recently there have been much discussion of the theory and applications of long memory processes. In this paper we consider the standard linear model y=X*b+u and assume that the variance covariance matrix of the errors being generated from an ARFIMA(0,d,0) model. Following Banerjee and Magnus...

A common problem in out-of-sample prediction is that there are potentially many relevant predictors that individually have only weak explanatory power. We propose bootstrap aggregation of pre-test predictors (or bagging for short) as a means of constructing forecasts from multiple regression...