Pricing Interest Rate Derivatives in a Non-Parametric Two-Factor Term-Structure Model Staff Working Paper 1999-19 John Knight, Fuchun Li, Mingwei Yuan Diffusion functions in term-structure models are measures of uncertainty about future price movements and are directly related to the risk associated with holding financial securities. Correct specification of diffusion functions is crucial in pricing options and other derivative securities. In contrast to the standard parametric two-factor models, we propose a non-parametric two-factor term-structure model that […] Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Market structure and pricing JEL Code(s): C, C1, C14, C2, C22, G, G1, G13
Forecasting GDP Growth Using Artificial Neural Networks Staff Working Paper 1999-3 Greg Tkacz, Sarah Hu Financial and monetary variables have long been known to contain useful leading information regarding economic activity. In this paper, the authors wish to determine whether the forecasting performance of such variables can be improved using neural network models. The main findings are that, at the 1-quarter forecasting horizon, neural networks yield no significant forecast improvements. […] Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods, Monetary and financial indicators JEL Code(s): C, C4, C45, E, E3, E37, E4, E44
A Discussion of the Reliability of Results Obtained with Long-Run Identifying Restrictions Staff Working Paper 1998-4 Pierre St-Amant, David Tessier In a recent article, Faust and Leeper (1997) discuss reasons why inference from structural VARs identified with long-run restrictions may not be reliable. In this paper, the authors argue that there are reasons to believe that Faust and Leeper's arguments are not devastating in practice. First, simulation exercises suggest that this approach does well when […] Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C3
A Comparison of Alternative Methodologies for Estimating Potential Output and the Output Gap Staff Working Paper 1997-5 Chantal Dupasquier, Alain Guay, Pierre St-Amant In this paper, the authors survey some of the recent techniques proposed in the literature to measure the trend component of output or potential output. Given the reported shortcomings of mechanical filters and univariate approaches to estimate potential output, the paper focusses on three simple multivariate methodologies: the multivariate Beveridge-Nelson methodology (MBN), Cochrane's methodology (CO), and the structural VAR methodology with long-run restrictions applied to output (LRRO). Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C1, C13, C5, C52, E, E5, E52
Reconsidering Cointegration in International Finance: Three Case Studies of Size Distortion in Finite Samples Staff Working Paper 1997-1 Marie-Josée Godbout, Simon van Norden This paper reconsiders several recently published but controversial results about the behaviour of exchange rates. In particular, it explores finite-sample problems in the application of cointegration tests and shows how these may have affected the conclusions of recent research. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C1, C15, C2, C22, C3, C32, F, F3, F31
Do Mechanical Filters Provide a Good Approximation of Business Cycles? Technical Report No. 78 Alain Guay, Pierre St-Amant In this paper, the authors examine how well the Hodrick-Prescott filter (HP) and the band-pass filter recently proposed by Baxter and King (BK) extract the business-cycle component of macroeconomic time series. Content Type(s): Staff research, Technical reports Topic(s): Econometric and statistical methods JEL Code(s): C, C5, C52, E, E3, E32
Avoiding the Pitfalls: Can Regime-Switching Tests Detect Bubbles? Staff Working Paper 1996-11 Simon van Norden, Robert Vigfusson Work on testing for bubbles has caused much debate, much of which has focussed on methodology. Monte Carlo simulations reported in Evans (1991) showed that standard tests for unit roots and cointegration frequently reject the presence of bubbles even when such bubbles are present by construction. Evans referred to this problem as the pitfall of testing for bubbles. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C2, C22, C5, C52
Unit-Root Tests and Excess Returns Staff Working Paper 1996-10 Marie-Josée Godbout, Simon van Norden Several recent papers have presented evidence from foreign exchange and other markets suggesting that the log of excess returns can be characterized as first-order integrated processes (I(1)). This contrasts sharply with the "conventional" wisdom that log prices are integrated of order one I(1) and that log returns should therefore be integrated of order zero I(0), and even more sharply with the view that past returns have no ability to predict future returns (weak market efficiency). Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C1, C12, F, F3, F31
Regime-Switching Models: A Guide to the Bank of Canada Gauss Procedures Staff Working Paper 1996-3 Simon van Norden, Robert Vigfusson This paper is a user's guide to a set of Gauss procedures developed at the Bank of Canada for estimating regime-switching models. Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods JEL Code(s): C, C6, C63
Selection of the Truncation Lag in Structural VARs (or VECMs) with Long-Run Restrictions Staff Working Paper 1995-9 Alain DeSerres, Alain Guay authors examine the issue of lag-length selection in the context of a structural vector autoregression (VAR) and a vector error-correction model with long-run restrictions. First, they show that imposing long-run restrictions implies, in general, a moving-average (MA) component in the stationary multivariate representation. Then they examine the sensitivity of estimates of the permanent and transitory […] Content Type(s): Staff research, Staff working papers Topic(s): Econometric and statistical methods