Renzo Orsi

Price-Wage Dynamics in a Transition Economy: The Case of Poland

In this paper we analyse the wage-price relationship of an economy in transition characterized by important structural changes. It is known (see Perron, 1989) that structural breaks in stationary time series can induce apparent unit roots. The stationarity analysis of the series employed in the present model is conducted jointly with the assumption that the breakpoint location is unknown. We follow a testing procedure recently proposed by Zivot and Andrews (1992). Cointegration analysis of wages and prices in the presence of structural breaks finds empirical evidence in favour of two cointegrating vectors involving prices and wages. Our analysis focuses on the different structural behaviour of the price-wage dynamic relationship in the short and long term; we also demonstrate the relative importance of import prices as a source of wage-price fluctuations.

A Simultaneous Disequilibrium Model for Italian Export Goods

An econometric methodology is proposed for simultaneously estimating a disequilibrium macroeconomic model which takes into account the interactions occurring between variables or equations when aggregate quantities come from markets which do not clear. A specification of disequilibrium is considered which is substantially a simultaneous version of the well known partial adjustment model, instead of taking into account the conventional “short-side” rule. A simple model for italian manufactured export goods is estimated with limited and full information techniques subject to cross equation restrictions which permit the identification of the structural parameters of the model. By investigating the extent to which these restrictions are supported by evidence, this approach is shown to be useful for the comprehension of how the italian export market for manufactured goods operates. Tests on equilibrium versus disequilibrium hypothesis seem to support such a specification for macro-disequilibrium.

Polynomial approximation of distributed lags and linear restrictions: A Bayesian approach

In this paper, the polynomial approximation of distributed lags is investigated within the framework of linear restrictions in linear regression models.In the first part, the polynomial approximation is analysed assuming well known the truncation point and the degree of the polynomial. The polynomial approximation is shown to involve linear restrictions on regression coefficients; two equivalent representations of these restrictions are used to clarify relationships between previous works byAlmon and byShiller. The difficulties related to the treatment of exact restrictions in a Bayesian framework are then tackled in the present context and alternative procedures are presented.In the second part, the analysis is extended to the case of unknown truncation point and/or unknown degree of the polynomial. This leads to consider mixed prior distributions as for the problem of choosing among different models. The paper ends by investigating the sensitivity of a particular set of data w.r.t. changes in the truncation point, in the degreee of the polynomial and in the prior tightness of the polynomial approximation.

Interpreting the Price Adjustment Dynamics in Transition Economies

As a result of the decisions taken at the Copenhagen European Council meeting held in June 1993, the enlargement of the European Union (EU) to a number of applicant Central and Eastern European countries is no longer a question ofifbutwhen.From an economic point of view, EU accession will take place as soon as the applicant is able to:(a)cope with competitive pressure and market forces within the EU;(b)take on the obligations of membership, including allegiance to the aims of political unification as well as Economic and Monetary Union (EMU). The European Central Bank (ECB) points out that: “Even though the fulfilment of the Maastricht convergence criteria (including price stability, the sustainability of public finance, exchange rate stability in the framework of participation in the exchange rate mechanism and the convergence of interest rates) is not mandatory for EU accession, accession countries’ should have macroeconomic programmes consistent with those prevailing in the Euro area in their policy agenda” (ECB, 2000,p. 44). Inflation is extremely important according to the EU policy agenda: “Accession countries need to continue to implement monetary policies geared towards achieving and maintaining price stability, and to support this process with prudent fiscal policies and adequate structural reforms.” (ECB, 2000, p. 49).

A note on price adjustment models in disequilibrium econometrics

Abstract Three different price adjustment equations are compared, in the framework of a standard disequilibrium model, and are shown to provide observationally equivalent models. Implications for testing equilibrium are spelled out.

Building a Structural Model: Parameterization and Structurality

A specific concept of structural model is used as a background for discussing the structurality of its parameterization. Conditions for a structural model to be also causal are examined. Difficulties and pitfalls arising from the parameterization are analyzed. In particular, pitfalls when considering alternative parameterizations of a same model are shown to have lead to ungrounded conclusions in the literature. Discussions of observationally equivalent models related to different economic mechanisms are used to make clear the connection between an economically meaningful parameterization and an economically meaningful decomposition of a complex model. The design of economic policy is used for drawing some practical implications of the proposed analysis.

Testing in econometrics: Are economic theories testable?

The problem of testing economic theories through the use of non-experimental data is considered. Even if it was recognized as one of the main objectives of the discipline since the forties, theory testing in econometrics did not receive the due attention and remained almost a desire till around the eighties, the few notable exceptions being Haavelmo (1944) and Sargan (1964). A specification search approach which recognized the non-experimental nature of data and which provides a general framework for evaluating the statistical reliability of a model is considered. According to this approach, the econometrician specifies models which both capture the probabilistic structure of the data, and, at the same time, provide a reliable synthesis of economic data, reinforcing the decisional capacity of the model itself.