This paper addresses the e¤ects for partial equilibrium models of relaxing one of the critical underlying assumptions of the textbook approach (Dixit and Pyndick, 1994) to investment under uncertainty: either the potential investor has access to a single project or she can consider competing...

This paper derives the autocorrelation function of the squared values of long-memory GARCH processes. The latter are of much interest since they can produce the long-memory conditional heteroscedasticity that many high-frequency financial time series exhibit. An empirical application...

This paper considers the issue of testing for symmetry of the business cycle. It is demonstrated that findings of symmetry should be interpreted with caution since tests tend to have low power to detect asymmetries when applied to data that have been filtered to isolate their stationary...

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 smooth transition threshold autoregressive model (C-STAR) as a modification of the smooth transition threshold autoregressive model surveyed in Teräsvirta (1998), in which the regime weights depend on the ex ante probability that a latent regime-specific...

e develop a model of regime-switching risk premia as well as regimedependent factor risk premia to price real options. The model incorporates the observation that the underlying risky income streams of real options are subject to discrete shifts over time as well as random changes. The presence...

We extend a target zone model to allow for occasional changes in the policy regime which change the stochastic process driving fundamentals. A scenario we have in mind is that macroeconomic policy alternates between relatively tight and loose regimes. A key implication of our analysis is that...

We examine several discrete-time term-structure models, in which the short rate is subject to discrete shifts. Our empirical analysis suggests that inquiring which parameters of the short-term interest rate equation are allowed to switch is crucial. Failing to do so may result in switching...

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....

Using a dynamic stochastic general equilibrium model with financial frictions we study the effects of a rule that incorporates not only the interest rate but also the legal reserve requirements as instruments of the monetary policy. We evaluate the effectiveness of both instruments to accomplish...