A dynamic model to estimate the long-run trends in potential GDP

To estimate long-run growth based on the so-called potential GDP became a constant preoccupation among economists. However, one remaining problem in every long-run growth model is to estimate a persistent trend in labour productivity outside of it, in order to avoid the implicit circular relationship between actual productivity growth and potential level of production. Coming from recent literature on natural rate of unemployment estimation we used a specific methodology in order to estimate NAIRU in case of post-communist economies and based on it to evaluate the potential GDP. Taking into account that the “classic” Hodrick-Prescott method is in fact equivalent to an interpolation procedure, we used in our experiment other three filters demonstrating very similar output. Moreover, we conceived a simple autonomous model in order to estimate the growth of a so-called “pure” productivity independently from the actual level of employment and to compare its dynamics with that of natural rate of unemployment.natural rate of unemployment; potential GDP; pure productivity

A model to estimate informal economy at regional level: Theoretical and empirical investigation

Many problems emerge since it is widely believed that high tax rates and ineffective tax collection by government are the main causes contributing to the rise of the informal economy. Already the economists have established a relationship between tax rates and tax evasion or size of the informal economy. The higher is the level of taxation, the greater incentive is to participate in informal economic activities and escape taxes. At the macroeconomic level, there is a number of so-called indirect methods used to estimate the size and dynamics of informal economy, reported in literature as “Monetary Approach”, “Implicit Labour Supply Method”, “National Accountancy”, “Energy Consumption Method”, etc. Unfortunately, many times there are huge differences among the estimated shares of informal or underground economy obtained by various methods. For instance, in case of Romania the figures are between about 20% of GDP, obtained on the base of the energy consumption method and more than 45% computed by using the monetary approach. Also, the figures reported by the National Institute for Statistics (NIS), based on national accounts methodology, increased (mainly due to changes in methodology) from about 5% in 1992, to 18% in 1997 and to 20-22% after 2000. Adding to these figures about 7% of GDP, representing the estimated level for self-consumption in case of a rural household, legal non-registered but informal, resulted that last years the informal economy is responsible of 27-29% of national economy. In this article, coming from certain general accepted finding of the theory in matter of modelling underground economy, we concentrate on evaluating analytically the limit-values of certain important parameters involved in models used to estimate the size of underground economy and to explain the mechanisms of its dynamics. Then we shall simulate some exercises on available data. The second goal of the paper is to report some conclusions of our investigation based on data supplied by special surveys organised in Romania. Also, in order to see since certain hypotheses (referring to the complex transmission mechanism from the tax policy decisions to the effective implication of agents into informal economy) are statistically verified and to extend the study from the aggregate level to a deep research inside the population set in regions, we used data supplied by this special large survey, which already were processed and are available in our database.informal economy; invisible sector; tax rate; probability of detection; risk-aversion; computer assistance

Underground economy modelling: simple models with complicated dynamics

The paper aims to model the underground economy using two different models: one based on the labor supply method and a generalized model for the allocation of time. The model based on the labor supply method is conceived as a simulating one in order to determine some reasonable thresholds of the underground sector extension based only on the available macroeconomic statistical data. The generalized model for the allocation of time is a model based on direct approach which estimates the underground economy through extrapolation of the data collected from a limited number of households. Developing the Lemieux model, the map of the entire process of allocation of time was obtained.underground economy; labor supply method; Laffer curve; allocation of time; Lemieux model

STRUCTURAL CHANGES AND CONVERGENCE IN EU AND IN ADRIATIC-BALKANS REGION

Coming from standard economic growth theory and empirical evidences, we concentrated on the convergence process as a result of structural changes in economy. We investigate the differences among countries in EU in terms of the share in total economy of main sectors. Then, based on the spatial (empirical) distribution of such shares in EU we are proposing a model to estimate a typology of the convergence process in the European area. Taking into account the existing differences among sectors in matter of productivity, there are two versions of the model: considering the share of sectors in total employment and the share of sectors in GDP respectively. Moreover, we developed several modelling schemes that could be useful to improve the strategies oriented to achieve a real convergence in EU and further in Adriatic-Balkans region. In this way, we can obtain simulations from a country or group of countries (European Union, for example) on long term and quantifying the impact of structural changes on the convergence process. Indeed, the actual global crisis seems to influence negatively the convergence process in EU. As a rule, just new adhered countries were more affected by the actual crisis. Today all forecasts are suffering by uncertainty. Thus, further efforts must be allocated to evaluate the negative impact of actual crisis on the convergence process.

Trends in Structural Changes and Convergence in EU

Despite the multitude of models created, their predictions are often contradicted by the empirical data, so that investigating macroeconomic structural changes continues to be a challenge to economists. Based on empirical data from countries around the world, our study tries to estimate a generic long-run model for analysing structural changes along with the general process of economic development. Moreover, from such a methodology a specific “EU model” was derived. Among the results, the long-run dynamics of structural changes seems to converge within the EU-27; the remaining problem being how long the convergence period is. This study shows how some more detailed interpretations could be extracted from the simulation of the model by using 3D maps or contour plot in the case of the EU countries.structural changes, non-linear model, asymptotical trajectory, stages of economic development.

Scenarios for post-crisis period based on a set of presumed changes in the interest rate – investment – GDP growth relationship

The interest rate and investment are among the central variables influencing the growth rate. Due to the complexity empirically demonstrated of the interest rate – investment – GDP growth relationship, last decades a growing concern over the modelling this relationship has increased attention among officials, politicians, and economists. Moreover, the actual global crisis seems to provoke new changes in the economic growth mechanism. Based on statistical data for last period, we try to build a set of partial models in order to investigate the interest rate - investment - growth rate relationship in case of EU members and in the same time to verify some hypotheses usually in standard economic literature. Applying such simple models derived from standard ones in our experiment we estimated their parameters in case of EU countries. The main two partial models are referring to the impact of investment on GDP growth rate and respectively to the relation between interest rate and investment. Moreover, an equation including inflation dynamics was taken into account. Finally, the derived global model demonstrates complex dynamics, moreover permitting to compute so-called natural rate of interest and other key-parameters for macroeconomic decisions.Investment; GDP Growth; Interest Rate; Depreciation Rate; Contour Plot

SPATIAL ECONOMETRICS - APPLICATIONS TO INVESTIGATE DISTRIBUTION OF CO2 EMISSION IN EUROPE*

Over the last decade economists were more and more concentrated on studying the impact of the greenhouse effect on economy. At the same time, they tried to find solutions to stop the CO2 emissions into the atmosphere and, implicitly, to make changes in the structure of energy production and consumption. This challenge forced them to use new models and methods in order to estimate more accurately the future economic development. Among the special tools, the so-called spatial econometrics begun to be used for studying, for example, the distribution of gas emissions in extended geographical zones, but also to quantify their implication at the macroeconomic level. Using available data, in this study we try to build a simple model dedicated to estimate on medium and long terms some likely major changes in the macroeconomic correlations under the circumstances of increase in the total quantity of CO2 emissions in the atmosphere and how that will influence the economic growth in the future. Certainly, under the unchanged actual technological conditions the growth rate of the economies in Europe or even worldwide could be dramatically affected at least in the long run by stronger restrictions on CO2 emission and on its corollary - production and consumption of energy resources. * (This paper is partially based on the author's study "Elaboration of a General Macroeconomic Model Specific to Romania for the Forecasting of Gas Emissions with Greenhouse Effect", achieved within the National Research Project of Excellence Advanced Forecasting Models for the Estimation of Gas Emissions with Greenhouse Effect Adapted for Romania, Institute for Economic Forecasting, Romanian Academy, Phase II, June 2006, Contract No. 638/3 October 2005, Contracting Authority - MENER, Contractor ICEM, Interval : 2005-2007).spatial econometrics, CO2 emission, three-dimensional map, contour plot, distribution

Non-linear models: applications in economics

The study concentrated on demonstrating how non-linear modelling can be useful to investigate the behavioural of dynamic economic systems. Using some adequate non-linear models could be a good way to find more refined solutions to actually unsolved problems or ambiguities in economics. Beginning with a short presentation of the simplest non-linear models, then we are demonstrating how the dynamics of complex systems, as the economic system is, could be explained on the base of some more advanced non-linear models and using specific techniques of simulation. We are considering the non-linear models only as an alternative to the stochastic linear models in economics. The conventional explanations of the behaviour of economic system contradict many times the empirical evidence. We are trying to demonstrate that small modifications in the standard linear form of some economic models make more complex and consequently more realistic the behaviour of system simulated on the base of the new non-linear models. Finally, few applications of non-linear models to the study of inflation-unemployment relationship, potentially useful for further empirical studies, are presented.non-linear model; continuous time map; strange attractor; fractal dimension; natural unemployment

A Model to Estimate the Composite Index of Economic Activity in Romania – IEF-RO

One of the most significant impediments for short-term forecasts is the frequency of publishing GDP. At present, national institutes of statistics are publishing officially registered GDP only quarterly. In our study, we tried to build a composite indicator based on usually monthly data and to use it in order to obtain short-term forecasts for economic activity at national level. This indicator could be useful taking into account that actually there is no synthetic indicator to describe the short-run dynamics of economic activity. Thus, such an estimating model we are proposing for the Romanian economy is coming from the last results in this field, especially from the OECD methodology. Moreover, to validate the main hypotheses of the estimating model for the composite indicator in the case of the Romanian economy we used the quarterly data and, as benchmark indicator was considered the quarterly published GDP. Using certain models based on composite indicators (leading indicators, coincidence indicators, and post-cycle indicators), beside other models to analyse high frequency time series and to obtain sort-term forecasts (such as principal component method, so-called virtual monthly GDP method or various interpolating methods), it can result in richer information for the business environment which in modern times founds itself in an accelerated process of change.business cycle indicators, coincident and leading indicators, composite index

Trends in inflation-unemployment relationship before and after accession to EU

First of all, we present synthetically a few empirical results regarding changes in the inflation-unemployment relationship in West European countries during last three decades and in few Central and Eastern countries during the last fifteen years. Then, coming from a general standard model for estimating natural unemployment (Ball and Mankiw, 2002) and using four smoothing filters, we estimate some possible trajectories for this relationship and for the potential GDP in Romania.inflation, unemployment, natural unemployment, Romanian economy