Robustness of power properties of non-linearity tests

The paper examines the robustness of the size and power properties of the standard non-linearity tests under different conditions such as moment failure and asymmetry of innovations. Our results reveal the following. First, there seems not to be a direct link between moment condition failure and the power variation of non-linearity tests. Second, the power of the tests is very sensitive to asymmetry of innovations compared to moment condition failure. Third, although we evaluate 9 non-linear time series models using 8 standard non-linearity tests, some non-linear models remain completely undetected

Testing non-linearity using a modified Q test

A new version of the Q test, based on generalized residual correlations (i.e. auto-correlations and cross-correlations), is developed in this paper. The Q test fixes two main shortcomings of the Mcleod and Li Q (MLQ) test often used in the literature: (i) the test is capable to capture some interesting non-linear models, for which the original MLQ test completely fails (e.g. a non-linear moving average model). Additionally, the Q test also significantly improves the power for some other non-linear models (e.g. a threshold moving average model), for which the original MLQ test does not work very well; (ii) the new Q test can be used for discrimination between simple and more complicated (non-linear/asymmetric) GARCH models as well

A note on the finite sample properties of the CLS method of TAR models

In this paper we focus on the finite sample properties of the conditional least squares (CLS) method of threshold autoregressive (TAR) parameters under the following conditions: (a) non-Gaussian model innovations; (b) two types of asymmetry (i.e. deepness and steepness) captured by TAR models. It is clearly demonstrated that the finite sample properties of the CLS method of TAR parameters significantly differ depending on the type of asymmetry. The behavior of steepness-based models is very good compared to that obtained from deepness-based models. Therefore, extreme caution must be excercised to preliminary modelling steps, such as testing the type of asymmetry before estimating TAR models in practice. A mistake in this phase of modelling can, in turn, give rise to very problematic results

Milk Quota Systems: Considerations of Market and Welfare Effects

Although the key concept of a quota is simple to set a limit on production the market and welfare implications of operating a quota system are relatively complex. The purpose of the analysis reported in this paper is to address two aspects relevant to an evaluation of quota systems. First, quota is typically contingent on the existence of another policy, namely market price support, and as such, interacts with other policy tools in pursuing defined policy objectives. The paper examines analytically and empirically the trade-offs that exist among the individual policy tools for a given policy objective. Second, the paper discusses some important welfare effects of quota systems that are not often considered in the literature. It illustrates that if parts of the primary factors of production are not owned by the milk farmer and prices for purchase farm inputs are not perfectly elastic the conventionally used measure of producer surplus may understate net benefits to farmers of a quota system. Under the quota, the share of benefits flowing to owners of farm resources is magnified at the expense of input suppliers and the rent accruing to quota reduces the surplus accruing to traditional resources. A fact that aggravates the vested interests inherent to a quota.Milk Quota, Policy Objectives, Welfare Analysis, Quota Rent, Agricultural and Food Policy, Livestock Production/Industries,

Eigenvalue Decomposition of Time Series with Application to the Czech Business Cycle

We follow a Beveridge-Nelson like time series decomposition method (into trend, business cycle and irregular components), and examine a stylized model of price inflation determination using the Czech data. We characterize the estimated components of CPI, IPPI and import inflations, together with the real production wage and real output, and survey their basic correlation properties; furthermore we compute structural innovations imposing restrictions on their long-run effects, draw the impulse responses, and test the results by means of bootstrap simulation. We conclude that major room for further refinement of the research is found in two areas, First, from an economist's perspective, in the construction of real marginal cost indicators, and second, from a statistiacian's perspective, in further investigation of the robustness of the method.bootstrap, business cycle, inflation, structural VAR, time series decomposition

Euroisation in Serbia

Euroisation in Serbia is rooted in a long history of macroeconomic instability. Extreme inflation volatility has undermined trust in the dinar and discouraged dinar savings. At the same time, an abundant supply of foreign capital inflows has provided easy access to foreign currency lending at low interest rates in an environment of perceived exchange rate stability – a perception reinforced by the choice of exchange rate regime. As a result, both the asset and the liability side of banks’ balance sheets, and even those of the non-bank sector, is heavily foreign currency-denominated. This paper documents the forces that promote euroisation in Serbia. The paper argues that, in the wake of the global crisis, a window of opportunity has emerged that could foster a process of de-euroisation. The lack of foreign funding and recent exchange rate volatility has tilted borrower incentives towards local currency borrowing. If disinflationary macroeconomic policies gain credibility, with the possible support of regulatory options, euroisation could drop sharply.