We hope to be able to provide answers to the following questions: 1) Has there been a structural break in postwar U.S. real GDP growth toward more stabilization? 2) If so, when would it have been? 3) What's the nature of the structural break? For this purpose, we employ a Bayesian approach to dealing with structural break at an unknown changepoint in a Markov-switching model of business cycle. Empirical results suggest that there has been a structural break in U.S. real GDP growth toward more stabilization, with the posterior mode of the break date around 1984:1. Furthermore, we #nd a narrowing gap between growth rates during recessions and booms is at least as important as a decline in the volatility of shocks. Key Words: Bayes Factor, Gibbs sampling, Marginal Likelihood, Markov-Switching, Stabilization, Structural Break. JEL Classi#cations: C11, C12, C22, E32. 1. Introduction In the literature, the issue of postwar stabilization of the U.S. economy relative to the prewar period has...

It is widely known that conditional covariances of asset returns change over time.

this paper can be found at http://www.duke.edu/charvey/Research/indexr.htm 1.

We study the interrelationship between capital °ows, returns, dividend yields and world interest rates in 20 emerging markets. We estimate a vector autoregression with these variables to measure the degree to which lower interest rates contribute to increased capital °ows and shocks in °ows a®ect the cost of capital among other dynamic relations. We precede the VAR analysis by a detailed examination of endogenous break points in capital °ows and the other variables. These structural breaks are traced to the liberalization of emerging equity markets. Our evidence of structural breaks calls into question past research which estimates VAR models over the full sample. After a liberalization, we ¯nd that equity °ows increase by 1.4 % of market capitalization. We also show that shocks in equity °ows initially increase returns which is consistent with a price pressure hypothesis. While the e®ect is diminished over time, there also appears to be a permanent impact. This is consistent with our ¯nding that our proxy for the cost of capital, the dividend yield, decreases. Finally, our analysis of the transition dynamics from pre-liberalization to post-liberalization suggests that when capital leaves, it leaves faster than it came in. These results may help us understand the dynamics of the recent crises in

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This chapter is concerned with methodological issues related to estimation, testing and computation in the context of structural changes in the linear models. A central theme of the review is the interplay between structural change and unit root and on methods to distinguish between the two. The topics covered are: methods related to estimation and inference about break dates for single equations with or without restrictions, with extensions to multi-equations systems where allowance is also made for changes in the variability of the shocks; tests for structural changes including tests for a single or multiple changes and tests valid with unit root or trending regressors, and tests for changes in the trend function of a series that can be integrated or trendstationary; testing for a unit root versus trend-stationarity in the presence of structural changes in the trend function; testing for cointegration in the presence of structural changes; and issues related to long memory and level shifts. Our focus is on the conceptual issues about the frameworks adopted and the assumptions imposed as they relate to potential applicability. We also highlight the potential problems that can occur with methods that are commonly used and recent work that has been done to overcome them.

A common view among recent studies on purchasing power parity is that the post-Bretton Woods period is far too short to reveal any significant parity reversion in individual series of real exchange rates. Is this really so? The answer, this study shows, depends very much on the statistical test being used. Two efficient univariate unit-root tests are applied to uncover parity reversion. These tests require much shorter sample sizes than conventional tests to attain the same statistical power. Empirical results show that parity reversion can be unveiled over the modern float if an efficient unit-root test is applied.

How are political events reflected in financial asset prices? Break points in sovereign debt

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