We develop a non-linear forecast combination rule based on copulas that incorporate the dynamic interaction between individual predictors. This approach is optimal in the sense that the resulting combined forecast produces the highest discriminatory power as measured by the receiver operating...

Previous macro-finance term structure models (MTSMs) imply that macroeconomic state variables are spanned by (i.e., perfectly correlated with) model-implied bond yields. However, this theoretical implication appears inconsistent with regressions showing that much macroeconomic variation is...

The paper studies the interaction between cyclical uncertainty and investment in a stochastic real option framework where demand shifts stochastically between three different states, each with different rates of drift and volatility. In our setting the shifts are governed by a three-state Markov...

Climate change must deal with two market failures: global warming and learning by doing in renewable use. The first-best policy consists of an aggressive renewables subsidy in the near term and a gradually rising and falling carbon tax. Given that global carbon taxes remain elusive, policy...

I consider a model in which an autocrat can be removed from power either through a military coup or a revolution by the citizens. In the event of a revolt by the citizens, the military may choose to support the autocrat to crush the revolt or play a passive role. The autocrat determines the...

Long-run restrictions have been used extensively for identifying structural shocks in vector autoregressive (VAR) analysis. Such restrictions are typically just-identifying but can be checked by utilizing changes in volatility. This paper reviews and contrasts the volatility models that have...

A growing literature uses changes in residual volatility for identifying structural shocks in vector autoregressive (VAR) analysis. A number of different models for heteroskedasticity or conditional heteroskedasticity are proposed and used in applications in this context. This study reviews the...

Two-player infinitely-repeated-entry games are revisited using a new Markov equilibrium concept. The idea is to have an incumbent facing a hit and run entrant. Rent dissipation no longer necessarily holds. It will not when competition is tough in case of entry. Similarities and differences with...

The empirical literature of stock market predictability mainly suffers from model uncertainty and parameter instability. To meet this challenge, we propose a novel approach that combines the documented merits of diffusion indices, regime-switching models, and forecast combination to predict the...