Lagged variables are often used as instruments when the generalized method of moments (GMM) is applied to time series data. We show that if these variables follow noncausal autoregressive processes, their lags are not valid instruments and the GMM estimator is inconsistent. Moreover, in this...

No consensus has emerged on how to deal with overnight returns when calculating realized volatility in markets where trading does not take place 24 hours a day. This paper explores several common volatility applications, investigating how the chosen treatment of overnight returns affects the...

We propose a new methodology for ranking in probability the commonly proposed drivers of inflation in the New Keynesian model. The approach is based on Bayesian model selection among restricted VAR models, each of which embodies only one or none of the candidate variables as the driver....

This is a supplementary appendix to "Noncausal Vector Autoregression".

Using GARCH-in-Mean models, we study the robustness of the risk-return relationship in monthly U.S. stock market returns (1928:1-2004:12) with respect to the specification of the conditional mean equation. The issue is important because in this commonly used framework, unnecessarily including an...

In this paper we propose a new GARCH-in-Mean (GARCH-M) model allowing for conditional skewness. The model is based on the so-called z distribution capable of modeling moderate skewness and kurtosis typically encountered in stock return series. The need to allow for skewness can also be readily...

Forecasts of the realized volatility of the exchange rate returns of the Euro against the U.S. Dollar obtained directly and through decomposition are compared. Decomposing the realized volatility into its continuous sample path and jump components and modeling and forecasting them separately...

According to several empirical studies, US inflation and nominal interest rates, as well as the real interest rate, can be described as unit root processes. These results imply that nominal interest rates and expected inflation do not move one-for-one in the long run, which is not consistent...

We study the impact of positive and negative macroeconomic US and European news announcements in different phases of the business cycle on the highfrequency volatility of the EUR/USD exchange rate. The results suggest that in general bad news increases volatility more than good news. The news...