In this paper we compare the predictive abilility of Stochastic Volatility (SV) models to that of volatility forecasts implied by option prices. We develop an SV model with implied volatility as an exogeneous var able in the variance equation which facilitates the use of statistical tests for...

We investigate changes in the time series characteristics of postwar U.S. inflation. In a model-based analysis the conditional mean of inflation is specified by a long memory autoregressive fractionally integrated moving average process and the conditional variance is modelled by a stochastic...

We study the relation between the credit cycle and macro economic fundamentals in an intensity based framework. Using rating transition and default data of U.S. corporates from Standard and Poor’s over the period 1980–2005 we directly estimate the credit cycle from the micro rating data. We...

We develop a proposal or importance density for state space models with a nonlinear non-Gaussian observation vector y ∼ p(y¦θ) and an unobserved linear Gaussian signal vector θ ∼ p(θ). The proposal density is obtained from the Laplace approximation of the smoothing density p(θ¦y). We...

SUMMARY We consider the dynamic factor model and show how smoothness restrictions can be imposed on factor loadings by using cubic spline functions. We develop statistical procedures based on Wald, Lagrange multiplier and likelihood ratio tests for this purpose. The methodology is illustrated by...

In this paper we investigate whether the dynamic properties of the U.S. business cycle have changed in the last fifty years. For this purpose we develop a flexible business cycle indicator that is constructed from a moderate set of macroeconomic time series. The coincident economic indicator is...