Macro and Financial Markets: The Memory of an Elephant?

Karim M. Abadir () and Gabriel Talmain ()
Additional contact information
Karim M. Abadir: Imperial College London, London, UK and The Rimini Centre for Economic Analysis, Italy

Working Paper series from Rimini Centre for Economic Analysis

Abstract: Macroeconomic and aggregate financial series share an unconventional type of nonlinear dynamics. Existing techniques (like co-integration) model these dynamics incompletely, hence generating seemingly paradoxical results. To avoid this, we provide a methodology to disentangle the long-run relation between variables from their own dynamics, and illustrate with two applications. First, in the forward-premium puzzle, adding a component quantifying the persistent nonlinear dynamics of exchange rates yields substantial predictability and makes the forward-premium term insignificant. Second, S&P 500 grows in a pattern of momentum followed by reversal, forming long cycles around a trend given by GDP, a stable non-breaking relation since WWII.

Date: 2008-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.rcea.org/RePEc/pdf/wp17_08.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:17_08

Access Statistics for this paper

More papers in Working Paper series from Rimini Centre for Economic Analysis Contact information at EDIRC.
Bibliographic data for series maintained by Marco Savioli ().