Wojciech W. Charemza

Speculative bubbles with stochastic explosive roots: The failure of unit root testing

Abstract This paper analyses the possibility of using unit root tests for testing for the presence of multiplicative processes which have a stochastic explosive root. It is shown that such processes encompass a large class of non-negative processes used in the analysis of financial markets, such as the geometric unit root process and the non-negative version of the Diba-Grossman speculative bubble process. Simulation analysis shows that the results of Evans which indicated the weakness of unit root tests for detecting periodically collapsing bubbles also extend to the class of stochastic explosive root bubbles.

Models and Estimation of Disequilibrium for Centrally Planned Economies

The planned level of output is an important variable in modelling Centrally Planned Economies and the present paper discusses several disequilibrium models in which the plan level is an endogenous variable. A key relationship in such a model is the plan-adjustment equation which is the counterpart of the usual price-adjustment equation employed in models of free economies. Seemingly minor differences in assumptions lead to markedly different econometric models. The coherency properties of these are studied and several likelihood functions are derived. The most complex of the models includes both endogenous plan levels and endogenous prices.

Joint application of the Dickey-Fuller and KPSS tests

Abstract For the joint use of Dickey-Fuller and KPSS statistics, the conventional critical values for those tests should be replaced by symmetric critical power values, corresponding to the probability of type 1 error for the Dickey-Fuller test and power of the KPSS tests for equal marginal cumulative distributions. The table gives values computed in Monte Carlo experiments.

Modelling parallel markets in centrally planned economies: The case of the automobile market in Poland

Most empirical work dealing with socialist economies appears to be oriented towards macroeconomic problems or at least to the study of highly aggregated time series. Examples are provided by Howard (1976), Lacko (1975), Podkaminer (1982), Portes and Winter (1980), Portes et al. (1983,1984a, b, 1985), Welfe (1983), and Charemza and Gronicki (1988). Only relatively infrequently has a particular market been the target of detailed empirical investigation; a case in point is the study of the Hungarian car market by Kapitany, Kornai and Szabo (1984 and Chapter 15 of this volume).

Disequilibrium modelling of consumption in the centrally planned economy

Consumption market modelling is, without doubt, the best developed area of disequilibrium analysis of centrally planned economies (CPEs). There are many more papers that estimate unbalanced consumption demand/supply equations and excess demand than there are studies of other sectors of a planned economy which frequently operate in a disequilibrium state, such as labour or investment. This special attention devoted to the consumer goods market by econometric modellers can be attributed to several factors. First, consumer markets in CPEs provide clear and ample evidence of disequilibrium, such as queues, formal or informal rationing, waiting lists, forced substitution, forced savings, etc. This suggests that the traditional equilibrium modelling is not of great use, especially for some chronically unbalanced markets like housing and meat. Second, statistical data for consumption analysis are relatively abundant, and of good quality, by CPE standards (but see section 11.4 for an assessment of the completeness and bias of consumption data). Finally, the practical importance of thorough empirical analysis of consumption (which includes the disequilibrium approach) cannot be overestimated. If decision-makers knew the extent to which demand exceeded or fell below the actual consumption level, then they could more easily develop a realistic policy of dealing with the problems of excess demand or supply. Given this, there always has been a strong demand for realistic information concerning imbalance in the consumption markets.

Rational and intrinsic bubbles: a reinterpretation of empirical results

Generally, the empirical evaluation of rational and intrinsic bubbles in stock markets cannot be approached by the use of unit root tests, since the appropriate null hypothesis in such cases is that of the bubble rather than of a unit root process. In this paper, rational and intrinsic bubble processes are simulated using parameter values suggested by previous research. This suggests the possibility of testing bubbles by customized testing, i.e. through simulation of the process under the null hypothesis conditional on assumed a priori parameters of the process.

Large econometric models of an East European economy: A critique of the methodology

Abstract The W series of econometric models of the Polish economy are widely regarded as the most advanced models for East European economies. The econometric methodology of the W models is analysed and the consistency of these models with the objectives of econometrics is evaluated. It is found that the models are generally not consistent with the Christ objectives of econometrics. The model W3 does not produce admissible forecasts and the comparative statics analysis of the model W5 gives uninterpretable results. The models, and especially the parts where so called disequilibrium indicators of the second kind are used, are not built in line with either the traditional Cowles Commission methodology or the contemporary methodologies of Hendry, Sims and Engle-Granger. In particular, the W models suffer from the Lovell bias (due to data mining), endo-exogenous divisibility of variables is ignored, the models are not structurally invariant in an economic policy analysis since they lack forward looking variables, and in the equations with disequilibrium indicators of the second kind the variables are not cointegrated.

Ex ante Dynamics of Real Effects of Monetary Policy: Theory and Evidence for Poland and Russia, 2001-2003

The paper proposes a new indicator of expected real effects of a policy aimed at controlling inflation. The indicator, called real effect of inflation targeting (REIT), involves the comparison of expected and output-neutral inflation. It is shown that it can be derived from a simple two-dimensional vector autoregressive model of inflation and output gap. The microdynamics of such model are explained in terms of the foundations of Taylor-type staggered wage contracts. It is assumed that the monetary authority has some discretion regarding the timing of monetary actions. Here REIT can be used to set the optimal times for such actions, if the control of output is regarded as a secondary policy target. A simulation experiment illustrates the rationale of such a device for timing monetary measures. The REIT has been used by the Polish Monetary Policy Council since 2001 in its inflation targeting and is thought to have contributed to a substantial decline in Polish inflation in 2003 and to an increase in output growth in 2004. A similar indicator computed for Russia as a means of monitoring monetary policy rather than as an active tool confirms that active expansionary policy in 2002 and 2003 might have contributed to Russian economic growth in 2004 and 2005, whereas similar policy measures for 2004 are likely to prove ineffective.

Market failure and stagflation: Some aspects of privatisation in Poland

The paper investigates causes of the stagflation phenomena which appeared in Poland in the period after the ‘shortageflation’, i.e. after February 1990. It is conjectured that one of the primary reasons for the appearance of the stagflation was substantial market uncertainty, which led to a market failure. The theoretical analysis is based on the Newbery-Stiglitz model of futures trading. This reveals that, in the presence of huge price variations a market is likely to fail if a substantial backwardation accompanies negative correlation between prices and quantities. The empirical evidence consists of testing market efficiency (weak and semi-strong forms) and the rational expectations hypothesis for the Polish consumption market and inflation in the period of shortageflation. It is found that the market survives the tests for weak efficiency but fails the test for semi-strong efficiency and rational expectations.

A quantity-constrained expenditure system: A note on Podkaminer's disequilibrium computations☆

Abstract It is shown that in a positive excess demand situation Podkaminers disequilibrium measure the ratio of notional demand to the observed quantity, is not related to excess demand, shortage, or spillover effect. An alternative measure which is based on the Clower-Benassy effective demand, is proposed. Podkaminers expenditure model is reformulated in a quantity-constrained form, which is used for estimating disequilibrium and spillover effects for Poland. The aggregate excess demand computed from the quantity-constrained expenditure system does not differ significantly from that estimated from an econometric disequilibrium model.