The Econometric Analysis of Recurrent Events in Macroeconomics and Finance THE ECONOMETRIC AND TINBERGEN INSTITUTES LECTURES Series Editors Herman K. van Dijk and Philip Hans Franses The Econometric Institute, Erasmus University Rotterdam The Econometric and Tinbergen Institutes Lectures series is a joint project of Princeton University Press and the Econometric Institute at Erasmus University Rotterdam. This series col- lects the lectures of leading researchers which they have given at the Econometric Institute for an audience of academics and students. The lectures are at a high academic level and deal with topics that have important policy implications. The series covers a wide range of topics in econometrics. It is not confined to any one area or sub-discipline. The Econometric Institute is the leading research center in econometrics and management science in the Netherlands. The Institute was founded in 1956 by Jan Tinbergen and Henri Theil, with Theil being its first director. The Institute has received worldwide recognition with an advanced training program for various degrees in econometrics. Other books in this series include Anticipating Correlations: A New Paradigm for Risk Manage- ment by Robert Engle Complete and Incomplete Econometric Models by John Geweke Social Choice with Partial Knowledge of Treatment Response by Charles F. Manski Yield Curve Modeling and Forecasting: The Dynamic Nelson- Siegel Approach by Francis X. Diebold and Glenn D. Rude- busch Bayesian Non- and Semi-parametric Methods and Applications by Peter E. Rossi Bayesian Estimation of DSGE Models by Edward P. Herbst and Frank Schorfheide The Econometric Analysis of Recurrent Events in Macroeconomics and Finance Don Harding and Adrian Pagan Princeton University Press Princeton and Oxford Copyright c 2016 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 6 Oxford Street, Woodstock, Oxfordshire OX20 1TW press.princeton.edu Jacket art courtesy of Shutterstock Jacket design by Rosalind Flower All Rights Reserved ISBN: 978-0-691-16708-4 Library of Congress Control Number: 2015958412 British Library Cataloging-in-Publication Data is available This book has been composed in Kerkis Printed on acid-free paper. ∞ Typeset by Nova Techset Pvt Ltd, Bangalore, India Printed in the United States of America 10987654321.