This paper proposes a Gaussian estimator for nonlinear continuous time models of the short term interest rate. The approach is based on a stopping time argument that produces a normalizing transformation facilitating the use of a Gaussian likelihood. A Monte Carlo study shows that the finite...

In two recent articles, Sims (1988) and Sims and Uhlig (1988) question the value of much of the ongoing literature on unit roots and stochastic trends. They characterize the seeds of this literature as "sterile ideas," the application of nonstationary limit theory as "wrongheaded and...

A new methodology is proposed to estimate theoretical prices of financial contingent-claims whose values are dependent on some other underlying financial assets. In the literature the preferred choice of estimator is usually maximum likelihood (ML). ML has strong asymptotic justification but is...

This paper explores tests of the hypothesis that the tail thickness of a distribution is constant over time. Using Hill's conditional maximum likelihood estimator for the tail index of a distribution, tests of tail shape constancy are constructed that allow for an unknown breakpoint. The...

We discuss some challenges presented by trending data in time series econometrics. To the empirical economist there is little guidance from theory about the source of trend behavior and even less guidance about practical formulations. Moreover, recent proximity theorems reveal that trends are...

General issues about the methodology of empirical econometric research are discussed. It is argued that the most successful paradigms for applied work are the ones that have a capacity to survive and to evolve into more useful forms as these are needed. Paradigms that embrace progressive...

The concept of a near-integrated vector random process is introduced. Such processes help us to work towards a general asymptotic theory of regression for multiple time series in which some series may be integrated processes of the ARIMA type, others may be stable ARMA processes with near unit...

It is shown that matrix quotients of submatrices of a spherical matrix are distributed as matrix Cauchy. This generalizes known results for scalar ratios of independent normal variates. The derivations are simple and make use of the theory of invariant measures on manifolds.

Slowly varying regressors are asymptotically collinear in linear regression. Usual regression formulae for asymptotic standard errors remain valid but rates of convergence are affected and the limit distribution of the regression coefficients is shown to be one dimensional. Some asymptotic...