The dynamic properties of micro based stochastic macro models are often analyzed through a linearization around the associated deterministic steady state. Recent literature has investigated the error made by such a deterministic approximation. Complementary to this literature we investigate how...

In the context of interest rate derivatives, we present two simple cases of replication error associated with common hedging strategies when agents have partial information about the real dynamics of the underlying asset. In particular, we derive an explicit expression for the hedging error due...

We consider a class of infinite‐horizon dynamic Markov economic models in which the parameters of utility function, production function, and transition equations change over time. In such models, the optimal value and decision functions are time‐inhomogeneous: they depend not only on state...

It is common to transform data to stationarity, such as by differencing and demeaning, before estimating factor models in macroeconomics. Imposing these transformations, however, limit opportunities to learn about trending behaviour. Trends and deterministic processes can play a central role in...

Recent literature claims that key variables such as aggregate productivity and inflation display long memory dynamics. We study the implications of this high degree of persistence on the estimation of Dynamic Stochastic General Equilibrium (DSGE) models. We show that long memory data produce...

Provides an analysis of dynamic modelling in econometrics by bridging the unit-root gap between structural and time series approaches and focusing on representation theorems of (co)integrated processes.The book also presents an analytical setting to guide the formulation and solution in closed...