In this paper we propose a time-varying vector error correction model in which the cointegrating relationship varies smoothly over time. The Johansen setup is a special case of our model. A likelihood ratio test for time-invariant cointegration is defined and its asymptotic chi-square distribution is derived. We apply our test to the purchasing power parity hypothesis of international prices and nominal exchange rates, and we find evidence of time-varying cointegration.

This paper considers three econometric models to determine the relationship between macroeconomic variables and tourism demand. Tourism demand is measured by the inbound visitor's population and also by on-the-ground expenditures. Macroeconomic determinants include the exchange rate, the relative domestic prices, and the World GDP per capita. The database is an unbalanced panel of 218 countries over the period 1995-2012. There is evidence that an increase in the World's GDP per capita, a depreciation of the national currency, and a decline of relative domestic prices do help boosting the number of arrivals and the correspondent expenditure level. The World's GDP per capita is more relevant when explaining arrivals, but relative prices become more important when we use expenditures as the proxy for tourism demand. In particular, we cannot reject the hypothesis of a relative prices unitary elasticity of expenditures. Additionally, we have also partitioned our data by income level and by continent. Results are robust in the …rst partition, but less robust in the second, although the main conclusions still hold.JEL Classi…cation: C23, L83.

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We study the empirical determinants of Credit Default Swap (CDS) spreads through quantile regressions. In addition to traditional variables, such as implied volatility, put skew, historical stock return, leverage, profitability, and ratings, the results indicate that CDS premiums are strongly determined by CDS illiquidity costs, measured by absolute bid-ask spreads. The quantile regression approach reveals that high-risk firms are more sensitive to changes in the explanatory variables that low-risk firms. Furthermore, the goodness-of-fit of the model increases with CDS premiums, which is consistent with the credit spread puzzle.