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Report
Testing under non-standard conditions in frequency domain: with applications to Markov regime-switching models of exchange rates and federal funds rate
We propose two test statistics in the frequency domain and derive their exact asymptotic null distributions under the condition of unidentified nuisance parameters. The proposed methods are particularly applicable in unobserved components models. Also, it is shown that the tests have considerable power when applied to a class of Markov regime switching models. We show that, after transforming the Markov regime switching model into the frequency domain representation we only have to face the issue of unidentified nuisance parameters in a nonlinear context. The singularity problem disappears. ...
Working Paper
Markov switching GARCH models of currency turmoil in southeast Asia
This paper analyzes exchange rate turmoil with a Markov Switching GARCH model. We distinguish between two different regimes in both the conditional mean and the conditional variance: "ordinary" regime, characterized by low exchange rate changes and low volatility, and "turbulent" regime, characterized by high exchange rate movements and high volatility. We also allow the transition probabilities to vary over time as functions of economic and financial indicators. We find that real effective exchange rates, money supply relative to reserves, stock index returns, and bank stock index ...
Discussion Paper
Comparing predictive accuracy I: an asymptotic test
We propose and evaluate an explicit test of the null hypothesis of no difference in the accuracy of two competing forecasts. In contrast to previously developed tests, a wide variety of accuracy measures can be used (in particular, the loss function need not be quadratic, and need not even be symmetric), and forecast errors can be non-Gaussian, nonzero mean, serially correlated and contemporaneously correlated.