Modelling shifts in the wage-price and unemployment-inflation relationships in Italy, Poland, and the UK

The relationship between wages, prices, productivity, inflation and unemployment in Italy, Poland, and the UK between the 1960s and the early 1990s is modelled as a cointegrated vector autoregression subject to regime shifts. For each of these economies there is clear evidence of a change in the underlying equilibria of this sector of the economy. Hypotheses concerning the similarity of the transition from a rigid to a flexible labour market are tested.

On selecting policy analysis models by forecast accuracy

The value of selecting the best forecasting model as the basis for empirical economic policy analysis is questioned. When no model coincides with the data generation process, non-causal statistical devices may provide the best available forecasts: examples from recent work include intercept corrections and differenced-data VARs. However, the resulting models need have no policy implications. A ‘paradox’ may result if their forecasts induce policy changes which can be used to improve the statistical forecast. This suggests correcting statistical forecasts by using the econometric model’s estimate of the ‘scenario’ change. An application to UK consumers expenditure illustrates the analysis.

Forecasting in the Presence of Structural Breaks and Policy Regime Shifts

The value of selecting the best forecasting model as the basis for empirical economic policy analysis is questioned. When no model coincides with the data generation process, non-causal statistical devices may provide the best available forecasts: examples from recent work include intercept corrections and differenced-data VARs. However, the resulting models need have no policy implications. A 'paradox' may result if their forecasts induce policy changes which can be used to improve the statistical forecast. This suggests correcting statistical forecasts by using the econometric model's estimate of the 'scenario' change, and doing so yields reduced biases.

Wages, Prices, Productivity, Inflation and Unemployment in Italy 1970-1994

The relationships between wages, prices, productivity, inflation and unemployment in Italy between 1970 and 1994, are modelled using a cointegrated vector autoregression. There is evidence of a change in the underlying equilibria and in the dynamic evolution of the variables, probably associated with the substantial changes in many sectors of the Italian economy after 1979. Alternative ways to model structural change in the Italian labour market are considered, including choice of lag length, the use of dummy variables, modelling conditionally on related macroeconomic variables, and modelling separate regimes. In adopting a split sample approach the results favour an hysteresis interpretation of unemployment.

Small system modelling of real wages, inflation, unemployment and output per capita in Italy 1970-1994

The relationships between real wages, output per capita, inflation and unemployment in Italy between 1970 and 1994, are modelled using a cointegrated vector autoregression. There is evidence of a change in the underlying equilibria and in the dynamic evolution of the variables, probably associated with the substantial changes in many sectors of the Italian economy after 1979. Alternative ways to model structural change in the Italian labour market are considered. In adopting a split sample approach the results favour an hysteresis interpretation of unemployment. <br><br> Keywords; regime shifts, forecasting, cointegration, real wages, infation, unemployment, output gap

Modelling economies in transition: an introduction

This paper considers the implications of structural breaks, such as have occurred in many transition economies, for econometric modelling based on the multivariate cointegration paradigm. It outlines recent developments on the identification of linear cointegrated systems, discusses some practical problems, and presents an extension to non-linear systems. This is followed by a discussion of the impact of structural breaks on the identification and estimation of such systems. Finally, it relates these issues to the other papers in this volume.

Reformulating empirical macro-econometric modelling

The policy implications of estimated macro-econometric systems depend on the formulations of their equations, the methodology of empirical model selection and evaluation, the techniques of policy analysis, and their forecast performance. Drawing on recent results in the theory of forecasting, we question the role of `rational expectations'; criticize a common approach to testing economic theories; show that impulse-response methods of evaluating policy are seriously flawed; and question the mechanistic derivation of forecasts from econometric systems. In their place, we propose that expectations should be treated as instrumental to agents' decisions; discuss a powerful new approach to the empirical modelling of econometric relationships; offer viable alternatives to studying policy implications; and note modifications to forecasting devices that can enhance their robustness to unanticipated structural breaks. Keywords; economic policy analysis, macro-econometric systems, empirical model selection and evaluation, forecasting, rational expectations, impulse-response analysis, structural breaks

Selective attention and inhibition : Effects of inhibition tasks on subsequent distractor rejection

Recent work has shown that the extent to which irrelevant distractors are perceived is determined by the level of perceptual load in relevant processing. While high perceptual load typically reduces distractor perception, low perceptual load typically results in perception of irrelevant distractors (see Lavie, 2001 for review). Thus in situations of low perceptual load, response tendencies toward the perceived yet irrelevant distractors must be prevented from leading to unwanted responses. This thesis provides a new line of behavioural evidence for the suggestion that selective attention involves inhibition of response tendencies to perceived distractors in situations of low perceptual load. Specifically, the present studies examined whether engaging response inhibition in one task would lead to greater response competition effects from irrelevant distractors on responses in a subsequent flanker task. We designed a new paradigm in which a flanker task was preceded by a response inhibition task on each trial. Response inhibition was manipulated either by varying the demand to make a response or to stop it (using a stop signal task - Chapter 2); or by varying the spatial congruency of the mapping between stimuli and responses (Chapter 3); or by varying the congruency between relevant and irrelevant dimensions in a Stroop colour word task (Chapter 4). The results suggest that the engagement of inhibition in the first task of each trial reduces the efficiency with which response tendencies to distractors were suppressed in the following flanker task. Carry-over effects of inhibition were dissociated from the effects of the general difficulty of Task 1; were found to persist across an interval of several seconds between the first and second tasks; and were also found to occur only in situations of low perceptual load. These findings thus provide new support for the suggestion that active inhibition is involved in selective attention

Model Identification and Non-unique Structure

Identification is an essential attribute of any model's parameters, so we consider its three aspects of 'uniqueness', 'correspondence to reality' and 'interpretability'. Observationally-equivalent over-identified models can co-exist, and are mutually encompassing in the population; correctly-identified models need not correspond to the underlying structure; and may be wrongly interpreted. That a given model is over-identified with all over-identifying restrictions valid (even asymptotically) is insufficient to demonstrate that it is a unique representation. Moreover, structre (as invariance under extended information) need not be identifiable. We consider the role of structural breaks to discriminate between such representations.

A retrospective on J.D. Sargan and his contribution to Econometrics

This retrospective provides a biographical history of Denis Sargan's career and reviews his contributions to econometrics, emphasizing the breadth of his work in both theoretical and applied econometrics. We include a complete bibliography for Denis and a list of PhD theses that he supervised - students were a substantive facet of his profesional life. Finally, two of Denis' previously unpublished manuscripts on model building now appear in print. Keywords; dynamic specification, econometrics, error correction model, finite sample distributions, identification, instrumental variables, model building, numerical computation, prices, production function, specification searches, wages