This paper develops a model for the forward and spot exchange rate which allows for the presence of a Markov switching risk premium in the forward market and considers the issue of testing the unbiased forward exchange rate (UFER) hypothesis. Using US|UK data, it is shown that the UFER...

In this paper we propose a contemporaneous threshold multivariate smooth transition autoregressive (C-MSTAR) model in which the regime weights depend on the ex ante probabilities that latent regime-specific variables exceed certain threshold values. The model is a multivariate generalization of...

This paper considers Markov error-correction (MEC) models in which deviations from the long-run equilibrium are characterized by different rates of adjustment. To motivate our analysis and illustrate the various issues involved, our discussion is structured around the analysis of the long-run...

This article considers the problem of selecting among competing nonlinear time series models by using complexity-penalized likelihood criteria. An extensive simulation study is undertaken to assess the small-sample performance of several popular criteria in selecting among nonlinear...

In this paper we propose a contemporaneous threshold multivariate smooth transition autoregressive (C-MSTAR) model in which the regime weights depend on the ex ante probabilities that latent regime-specific variables exceed certain threshold values. A key feature of the model is that the...

This paper proposes a contemporaneous-threshold smooth transition GARCH (or CSTGARCH) model for dynamic conditional heteroskedasticity. The C-STGARCH model is a generalization to second conditional moments of the contemporaneous smooth transition threshold autoregressive model of Dueker et al....

This paper considers the problem of estimating Markov regime switching models with endogenous explanatory variables. When the data-generating process for consumption is subject to Markov regime switching, the standard model for the term structure of interest rates based on the Euler equations...

In this paper we investigate the forecast performance of nonlinear error-correction models with regime switching. In particular, we focus on threshold and Markov switching error-correction models, where adjustment towards long-run equilibrium is nonlinear and discontinuous. Our simulation study...