Virmantas Kvedaras

Regression Models with Variables of Different Frequencies: The Case of a Fixed Frequency Ratio

An increasing variety of data frequencies available in economics, finance, etc. gives rise to a question how to build and estimate a regression model with variables observed at different frequencies. In a unifying framework of (m,d)-aggregation we consider various approaches by discussing some potential and limitations. A Monte Carlo experiment and an empirical example illustrate that the traditional fixed aggregation approach, widely used in applied economics, might be inconsistent with data and highly inferior in terms of model precision.

Explanation of Economic Growth Differences in the CEE Countries: Importance of the BOP Constraint

Abstract This paper presents a balance-of-payments (BOP) constrained growth analysis of the long-run growth process in the Central and Eastern European (CEE) countries during the recovery period of transition (1995-2004). The paper tests the BOP-constrained growth model, based on the specification of a dynamic import function, which describes the short-term and long-term import behaviour in a different way. McCombie and Thirlwall have implicitly argued for a similar specification of the import function in the analyses of this kind. Econometrically, the import function is formulated, in this article, as a conditional Error Correction Model (ECM). It is shown that even the basic BOP-constrained growth model captures well the disparity of growth rates of the gross domestic product (GDP) in the CEE countries. Furthermore, the use of this approach does not point to any ‘puzzles of the Baltic growth’ that were observed in the analysis by Campos and Kinoshita (2002) based on the supply side model which included the transition-specific variables.

Testing the demand-led and BOP-constrained growth model: a system approach

In a series of articles of the journal Applied Economics there was an extensive debate on the Balance-of-Payments (BOP)-constrained growth model and its testing. This led to a single-equation-based test for the necessary condition of the BOP-constrained growth model that the BOP constraint binds. Since then many extensions and applications of the basic BOP-constrained growth model have appeared in the related literature, but the empirical model evaluation methodology has not been developed to further test the sufficient condition that causality runs from foreign demand or exports determined by it to GDP rather than the other way round. This study utilizes the standard vector error correction model (VECM) to formalize a system approach to empirical testing of both the necessary and sufficient conditions.

Creative destruction and export patterns

This paper presents an international trade model based on a market structure with monopolistic competition and age dependent quality and productivity in producing each product variety. Due to innovations new product varieties of a still higher quality enter the market every period rendering old varieties obsolete. For a given technology (variety) production costs decrease after an infant period due to learning. While all firms are assumed to be symmetric in a life-cycle perspective, at a given point in time firms of different ages differ in productivity, firm size, product quality, and export behavior. The model highlights a process of creative destruction, which allows firms to produce in a finite span of periods determined by the intensity of product and process innovations. The model predicts a wide range of export behavior of the individual firm during its life cycle depending on the structure of technological progress and trade costs. These predictions are consistent with empirical evidence on firms internationalization in a dynamic perspective.