We present an spectral numerical method for the numerical valuation of bonds with embedded options. We use a CIR model for the short term interest rate. The method is based in a Galerkin formulation of the relevant partial differential equation for the value of the bond discretized by means of...

Markov switching regression processes belong to the class of Hidden Markov models (HMMs). They provide a higher flexibility than, for example, simple (auto)regression. The main reason for their popularity is the convenient interpretability. For sufficiently long time series, the different...

A class of stochastic unit-root bilinear processes, allowing for GARCH-type effects with asymmetries, is studied. The volatility is not bounded away from zero and is minimum for non zero innovations, which are important differences with the standard GARCH. Necessary and sufficient conditions for...

This study analyses the relationship between financial transparency and price informativeness with respect to forward earnings for a sample of European firms. Price informativeness is defined in the context of the amount of information reflected in current returns about future and current...

We deal with bootstrapping tests for detecting conditional heteroskedasticity in the context of standard and nonstandard ARCH models. We develope parametric and nonparametric bootstrap tests based both on the LM statistic and a neural statistic. The neural tests are designed to approximate an...

The literature on optimal monetary policy typically makes three major assumptions: 1) policymakers’ preferences are quadratic, 2) the economy is linear, and 3) stochastic shocks and policymakers’ prior beliefs about unobserved variables are normally distributed. This paper relaxes...

This paper uses real-time data and forecasts provided in historical briefing documents prepared for the Federal Open Market Committee of the United States Federal Reserve to estimate evolving central bank perceptions of the natural rate of unemployment. The briefing documents, informally known...

In this paper, we reformulate the theoretical baseline DAS-AD model of Asada, Chen, Chiarella and Flaschel (2004) to allow for its somewhat simplified empirical estimation. The model now exhibits a Taylor interest rate rule in the place of an LM curve and a dynamic IS curve and dynamic...

For policymakers, thinking about best practice monetary policy means thinking about uncertainty. Open economy monetary policymakers face an additional source of uncertainty – exchange rate dynamics. This paper identifies policy rules robust to the open economy inflation targeters face in...

We provide analytical and empirical underpinnings for the notion that the financial fragility of the aggregate economy depends on the balance sheet conditions of the corporate sector. First, we obtain time-varying semiparametric estimates of the relationship between the debt-equity ratio and the...