Macroeconomic analysis of trade in some CEE countries

The research in this paper is focus on macroeconomic analysis of trade and other relevant indicator for real economy such as government net debt, exchange rate, interest rate, and especially the correlation between trade and growth. Today is widely accepted that openness of counties have important role for economic performance, therefore the investigation of trade is challenge for economists of small developing countries. The mail goal in this paper is theoretical analysis of some macroeconomic indicator as a factor of growth and empirical investigation of trade in some CEE countries.Macroeconomics, CEE countries, trade, exchange rate, PPP, inflation

Cobb-Douglas production function revisited, VAR and VECM analysis and a note on Fischer/Cobb-Douglass paradox

Cobb-Douglas production function is a basic function in growth models. The modeling in this paper showed that VAR is stable; KPSS test showed that output, capital and labor are not trend stationary. Johansen’s co-integration test showed that a requirement for Fischer/Cobb-Douglass paradox to work is met at 3 lags, there factor shares are I(0). The Fisher/Cobb-Douglas Paradox is based on constant factor shares. (In terms of time-series analysis, such constancy is equivalent to factor shares being I(0). The Fisher/Cobb-Douglas Paradox is thus why the estimated σ equals unity independent of the underlying production technologies generating the simulated data.At 4 lags however these variables are I(1) variables i.e. Cobb-Douglass is not CES function anymore. ADF test for factors of production showed that natural logarithm of capital is stationary variable, while log of labor is not-stationary except at 10% level of significance. Adjustment parameters showed that labour responds more / faster than loutput (log of GDP) and lcapital on if there is change / shock in the system.VECM model failed the stability eingevalues test.Fisher/Cobb-Douglas Paradox,cointegration, VAR,VECM,ADF test , unit root,

Monopolistic competition: Critical evaluation the theory of monopolistic competition with specific reference to the seminal 1977 paper by Dixit and Stiglitz

This paper revisits the D-S (Dixit-Stiglitz) model. It’s a simple general monopolistic model with n monopolistic goods, and a numeraire good Labour ( w=1); aggregation for all goods in the economy. We have considered in our paper constant elasticity of substitution case(CES).On the supply side, the assumption is that the labour is perfectly mobile factor of production across the sectors, so as a result in our model there is single wage rate which we denote as in the other sectors than monopolistic there is constant returns to scale and we can specify the production function: The Dixit-Stiglitz model of monopolistic competition works only when n is large; from the functions of the productions best when one applies linear production function. Under increasing returns to scale monopolistic competition will lead to a greater degree of product differentiation than it is socially optimal.Monopolistic competition, CES, Dixit-Stiglitz model, product differentiation

Empirical testing of Balassa-Samuelson hypothesis with German and UK data

There are a lot of studies that test Ballasa –Samuelson hypothesis also known as Harrod-BalassaSamuelson effect directly via the effect of productivity, one possible explanation is that PER Capita GDP is not good explanation for productivity (.i.e. Labor productivity) differences; an increase (decrease) in relative efficiency of the distribution sector with respect to foreign countries induces depreciation (appreciation) of the exchange rate. After we obtained the number of co-integrated vectors we continue further to see whether the CV tells us something about the long run relationship into the model, likelihood ratio test of exactly identified restrictions test confirms that constant is insignificant variable therefore we can confirm that there is long-run relationship in which the changes in Exchange rate are positively correlated with the changes of ratio of German Consumer Price Index (CPI) to the UK Retail Price Index (RPI). In order to test for relative PPP to support the theoretical relationship between the variables, restrictions are put on the PPP knowing that PPP and that downward movement in the series indicates increase of UK price level relative to German price level. In each EC model there is an EC mechanism and coefficient on the co integrating vector measures the rate per period at which one of the endogenous variables adjusts. In the first equation the error correction mechanism is highly significant and negative. If the system is out of equilibrium, alteration in the change of the exchange rates will be downward (everything else ceteris paribus) compensating around 68% of the disequilibrium per year. In the second equation error correction mechanism is also highly significant but positive meaning that if the system is in disequilibrium changes of change in the ratio of German CPI relative to UK Retail Price index will rise offsetting 15% of the disequilibrium per year until the equilibrium rate of exchange rate will be achieved. Model implies German Labor productivity to UK Labor productivity ratio doesn’t have significant influence on explaining on relative change on prices not even on theexchange rate contrary to Pugh, Beachil studyPurchasing power parity, Exchange rate, co integration, error correction model, productivity, Consumer Price Index, Retail Price Index

Analysis of the optimal size of the government consumption

The aim of this paper is to investigate the size of the government in 12 OECD countries. Data are gathered from Penn Tables. Clustered robust OLS estimation techniques have been used. Also Panel estimation techniques have been applied, FE and RE estimation. The functional form is quadratic is been used, to determine the point where the size of the government is optimal. Government consumption has been used as a proxy variable for government size.Government size, Clustered robust OLS, quadratic equation, Armey curve,Panel data, Fixed effect estimation, Random effects estimation, GLS , Pooled OLS

New Keynesian macroeconomics:Empiricaly tested in the case of R.Macedonia

In this paper we test New Keynesian propositions about inflation and unemployment trade off with the New Keynesian Phillips curve and the proposition of non-neutrality of money. The main conclusion is that there is limited evidence in line with the New-Keynesian theory. Money and growth are cointegrated series and that money growth influences the economics growth with one quarter lag. Cointegration means also that if the two series are cointegrated they have long run equilibrium. St.Louis model in the paper showed overall that increase in money growth leads to decrease in the economy growth. But the effect in the equation at three quarters lag is positive. The NAIRU rate in the unemployment inflation trade off model is almost similar as high to the actual unemployment. In the New Keynesian Phillips curve not surprisingly, there appears to be no statistically significant relationship between inflation and unemployment – even in the classical Philips curve and in adaptive expectations Philips curve by Modigliani-Papademos (1975). Or the Friedman-Phelps-Lucas expectations augmented one between the difference of actual and expected inflation rate and the gap between actual and the natural rate of unemployment presented in the next equation

How Do Institutions Determine Economic Growth: Evidence from the CEE Countries Before and During the Global Economic Crisis

The main goal of the paper is to investigate how the institutions influence on economic growth and economic performance of the CEE countries, before and during the global economic crisis. We use principal factor component analysis in order to create a more reliable and representative variable that will measure the institutional capacity in our regression models, and to avoid the multi colinearity, a common statistical weakness of this type of regression model. The results from panel (random and fixed effects) regressions and a GMM dynamic panel regression lead to two contrasting insights. The first regression model shows positive and statistically significant correlation between institutions and economic growth, which would imply that the CEE countries that have created a strong institutional capacity during transition and post-transition period have experienced higher economic growth. On the other side, the estimated results refer to the global economic crisis period, shows a negative influence of institutions on economic growth for the same sample of countries. One explanation for this result might be the fact that countries with a higher degree of integration into the EU were also more vulnerable to the global economic crisis

Export Complexity and Economic Growth: Empirical Analysis for Selected CEE Countries

The principal objective of the paper is to test the hypothesis that export sophistication (complexity) rather than the volume of exports has a more robust impact on economic growth. We applied a dynamic panel specification model (system GMM) to a sample of 22 selected CEE countries in the 2009–2019 period. Estimated research results suggest that export still plays a significant role in determining economic growth in these countries. However, the analysis shows that export sophistication (complexity) has a predominant role in stimulating economic growth for the observed sample of countries. In addition to the main focus of the paper, estimated results show that FDI inflows have a positive and statistically significant direct and indirect impact on economic growth. Moreover, the results indicate that, apart from the direct effects of export sophistication on economic growth, it has an additional positive effect on export performance through structural transformation. When comparing the impact of export sophistication on economic growth, the difference between EU and non-EU economies seems to be mostly insignificant

Empirical Estimation of Is-Lm Model for the US Economy by Applying Jmulti

The main goal of the paper is to examine how well the dynamics properties of the estimated model of the US economy match to the theoretical prediction to the IS-LM model or with other words to test the theoretical IS-LM model for the US by applying time series estimations (standard VAR and VECM time series models). The interest variables in the models are: real GDP, three month interbank interest rate, and real monetary base. Several pre estimation tests have been made: 1) the Jarque - Bera test of normality shows that the normality of the time series is not problem in these models, but the ARCH LM test of heteroscedasticity indicates that the monetary base and interbank interest rate are heterosedastic; 2) The ADF test for unit root and Johansen test for co integration have been made to identify the optimal number of lags of the variables in the models. The applied post estimation Chow test for VAR model indicated that the model is not stable and therefore we use VECM model. The estimated results based on applying VECM model show that if the system is in disequilibrium alteration in the change of interbank interchange interest rate, log of real GDP, and monetary base will be downward 5.5%, 4.6% and 0.4% respectively. The chow test indicates that the VECM model is stable

Exchange rate volatility and trade: A Meta-Regression Analysis

Many empirical studies have been done to investigate whether trade is influenced by exchange rate volatility. Conventional wisdom is that increased exchange rate volatility inhibits the growth of foreign trade.This MRA extends by 10 studies and 100 observations Pugh’s and Coric (2008) Meta regression. Now this MRA is updated with studies published to date (2012 year). Around 67 studies have investigated the effect of exchange rate variability and international trade resulting in 923 estimates. On average, exchange rate variability exerts negative effect on international trade. The conlcusion is that in the literature of exchange rate variability and trade there is presence of genuine empirical effect and not a presence for publication bias. The publication bias that appeared in the clustered robust model is perhaps due to the ten papers that were added to Pugh’s and Coric MRA. They were not from the Econlit data base. Results are summarized in the following two tables