A pair of simple modifications-in the forecast error and forecast error variance-to the Kalman filter recursions makes possible the filtering of models in which one or more state variables is truncated normal and latent. Such recursions are broadly applicable to macroeconometric models, such as...

In this paper we provide international evidence on the issue of whether the optimizing IS equation is more stable than a backward-looking alternative. The international evidence consist of estimates of IS equations on quarterly data for the UK and Australia, both for the full sample of the last...

The one-sector Solow-Ramsey model is the most popular model of long-run economic growth. This paper argues that a two-sector approach, which distinguishes the durable goods sector from the rest of the economy, provides a far better picture of the long-run behavior of the U.S. economy. Real...

This paper discusses various challenges in the specification and implementation of “macro-finance” models in which macroeconomic variables and term structure variables are modeled together in a no-arbitrage framework. I classify macro-finance models into pure latent-factor models...