We consider the dynamic factor model and show how smoothness restrictions can be imposed on the factor loadings. Cubic spline functions are used to introduce smoothness in factor loadings. We develop statistical procedures based on Wald, Lagrange multiplier and likelihood ratio tests for this...

The use of large-dimensional factor models in forecasting has received much attention in the literature with the consensus being that improvements on forecasts can be achieved when comparing with standard models. However, recent contributions in the literature have demonstrated that care needs...

This paper puts forward kernel ridge regression as an approach for forecasting with many predictors that are related nonlinearly to the target variable. In kernel ridge regression, the observed predictor variables are mapped nonlinearly into a high-dimensional space, where estimation of the...

Many key macro-economic and financial variables are characterised by permanent changes in unconditional volatility. In this paper we analyse vector autoregressions with non-stationary (unconditional) volatility of a very general form, which includes single and multiple volatility breaks as...

A review is given of parametric estimation methods for discretely sampled multivariate diffusion processes. The main focus is on estimating functions and asymptotic results. Maximum likelihood estimation is briefly considered, but the emphasis is on computationally less demanding martingale...

This paper proposes a methodology for modelling time series of realized covariance matrices in order to forecast multivariate risks. The approach allows for flexible dynamic dependence patterns and guarantees positive definiteness of the resulting forecasts without imposing parameter...

An analysis of some identification problems in the cointegrated VAR is given. We give a new criteria for identification by linear restrictions on indi- vidual relations which is equivalent to the rank condition. We compare the asymptotic distribution of the estimators of alpha and beta when they...

We consider two likelihood ratio tests, so-called maximum eigenvalue and trace tests, for the null of no cointegration when fractional cointegration is allowed under the alternative, which is a first step to generalize the so-called Johansen's procedure to the fractional cointegration case. The...

We extend the VAR based intertemporal asset allocation approach from Campbell et al. (2003) to the case where the VAR parameter estimates are adjusted for small-sample bias. We apply the analytical bias formula from Pope (1990) using both Campbell et al.'s dataset, and an extended dataset with...

A regime dependent VAR model is suggested that allows long memory (fractional integration) in each of the regime states as well as the possibility of fractional cointegra- tion. The model is relevant in describing the price dynamics of electricity prices where the transmission of power is...