This study develops a two-step estimator for a panel data Tobit model based on taking first-differences of the equation of interest, under conditional mean independence assumptions.The necessary correction terms are non-standard and a substantial part is therefore devoted to the formal...

Many researchers use GARCH models to generate volatility forecasts. We show, however, that such forecasts are too variable. To correct for this, we extend the GARCH model by distinguishing two regimes with different volatility levels. GARCH effects are allowed within each regime, so that our...

Most economists intuitively consider purchasing power parity (PPP) to be true. Nevertheless, quite surprisingly, the empirical literature is not very supportive for PPP. In this paper, however, we find evidence in favor of PPP using a new test. The test is embedded in a Markov regime-switching...

We analyze the time-dependence of exchange rate correlations using a new multivariate GARCH model. This model consists of two parts. First, we transform the exchange rate changes into their principal components and specify univariate GARCH models for all components. Second, we use the inverse of...

The question whether exchange rate risk a¤ects trade has received considerable attention in the literature. However, the conclusions are still mixed. This paper analyzes why it is so difficult to obtain a clear answer from time series analyses. We use data on bilateral aggregate US exports to...

This paper applies Obstfeld's Euler equation tests to assess the degree of financial integration in the European Union. In addition, we design a new Euler equation test which is intimately related to Obstfeld's Euler equation tests. Using data from the latest Penn World Table (Mark 6), we arrive...

This paper discusses the joint estimation of the long run equilibrium coe cients and the parameters governing the short run dynamics of a fully parametric cointegrated system formulated in continuous time.The model allows the stationary disturbances to be generated by a stochastic di erential...