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Discussion Paper
Stochastic volatility and the distribution of exchange rate news
This paper studies the empirical performance of stochastic volatility models for twenty years of weekly exchange rate data. We concentrate on the effects of the distribution of the exchange rate innovations for parameter estimates and for estimates of the latent volatility series. We approximate the density of the log of exchange rate innovations by a mixture of normals. The major findings of the paper are that: (1) explicitly incorporating fat-tailed innovations increases the estimates of the persistence of volatility dynamics; (ii) estimates of the latent volatility series depend strongly ...
Discussion Paper
When unit roots matter: excess volatility and excess smoothness of long term interest rates
This paper reexamines volatility tests of the expectations model of the term structure of interest rates. The restrictions of the model are studied in a general multivariate MA representation of the time series process of interest rates under various assumptions on the number of unit roots and the pattern of cointegration. Test statistics are computed by Bayesian techniques. We find that the long term interest rate overreacts to transitory shocks, and underreacts to permanent shocks.
Discussion Paper
On Bayesian routes to unit roots
This paper is a comment on P.C.B. Phillips, To criticise the critics: an objective Bayesian analysis of stochastic trends [Phillips (1990)]. Departing from the likelihood of an univariate autoregressive model different routes that lead to a posterior odds analysis of the unit root hypothesis are explored, where the differences in routes are due to the different choices of the prior. Improper priors like the uniform and the Jeffreys prior are less suited for Bayesian inference on a sharp null hypothesis as the unit root. A proper normal prior on the mean of the process is analyzed and ...