Money-Income Relationships between Three ERM Countries

This paper investigates the monetary interdependence and the money-income relationship between countries under a pegged and a floating exchange rate system during the same time period (1979-1997). The relationship is tested between three ERM countries, France, Germany and Holland, and also between these countries and the United States. The ERM countries have a pegged exchange rate between themselves, and the rate between these countries and the United States is freely floating. The empirical tests are conducted by means of the Johansen multivariate cointegration method and the error correction model. Among the ERM countries, international transmission of monetary policy is found in almost all directions. This may provide evidence against the theory of German domination of the EMU. In the second set of tests, the United States money is found to affect all three European incomes but not vice versa.monetary policy; cointegration; error correction; speed of adjustment; exchange rate

Forecasting the time-varying beta of UK firms: GARCH models vs Kalman filter method

This paper forecast the weekly time-varying beta of 20 UK firms by means of four different GARCH models and the Kalman filter method. The four GARCH models applied are the bivariate GARCH, BEKK GARCH, GARCH-GJR and the GARCH-X model. The paper also compares the forecasting ability of the GARCH models and the Kalman method. Forecast errors based on return forecasts are employed to evaluate out-of-sample forecasting ability of both GARCH models and Kalman method. Measures of forecast errors overwhelmingly support the Kalman filter approach. Among the GARCH models both GJR and GARCH-X models appear to provide a bit more accurate forecasts than the bivariate GARCH model