Modelling structural change using the Kalman Filter

Structural change is endemic in the Eastern European economies and the newly emerging Commonwealth of Independent States, yet conventional econometric modelling techniques proceed under the assumption that there is a structurally stable ‘true’ economy to be discovered. This paper explores the consequences of endemic structural change for econometric modelling by considering the model reduction problem when the data generation process is itself undergoing structural change. The resultant econometric model, it is argued will generally exhibit time varying parameters where much of the structural change is reflected in the changing parameters. The use of Kalman Filters to estimate such changing parameters is then discussed and a range of specifications which allow the inclusion of different forms of identifying information is given. The paper then illustrates these ideas by modelling the determination of the black market exchange rate in Poland over the period from the mid 1970s to the early 1990s.     

Exchange rate, inflation and unemployment in East European economies: the case of Poland and Hungary*

The aim of the paper is to model the impact of exchange rate on both inflation and unemployment variables in economies which are characterized by important structural changes, i.e. a transition phase moving from centralized economies towards market economies. This phenomenon, which is common to the East European countries, stressed different effects both for what concerns the behaviour of economic agents and for what concerns fiscal and monetary measures adopted by governments and aiming to keep under control the inflation–unemployment trade off. Time series relationships between these variables are investigated within an econometric model. Economic theory and the available data on the hypothetically relevant variables, along with the consideration of the main facts occurred in the period under study, characterize our information set. It is found that single equation analysis yields inefficient inference relative to the whole system analysis, and important structural changes are detected which reflect possible breaks in the structure of the economic system along with a change in economic policy.     

Exploring the Impact of Agricultural Price and Trade Policy Reform under Transition in Albania

Agricultural policy decision making in economies undergoing transition to market is in need of empirical tools for assessing the impact of alternative policy options. The econometric means available for such exercise, however, are limited for lack of data and structural breaks in economic behaviour. Synthetic, partial equilibrium, multi-market models offer a potential alternative. Such models have been used extensively, even in advanced economies, to offer valuable insights on the impact of alternative policy options. This paper shows the use of such a partial equilibrium, multi-market, synthetic-type model as a tool for agricultural policy analysis in a country in transition. The model is applied for Albania, a predominantly agricultural country that, after a period of centralism and autarky, aims to re-join the international economic system. The model, albeit its many limitations, offers some useful insights on the impact of alternative options available for agricultural price and trade policy.     

Stochastic Models of Crime Rates

Empirical-stochastic models of index crimes are developed in ten major metropolitan areas. Detailed examples of the model building and forecasting ability of the models are illustrated. Characteristics of the resulting model forms are briefly discussed relative to their use in forecasting and resource assignment in criminal justice planning. The existence of uniform underlying causal mechanisms for given crime types are also discussed from re-occurring model forms.     

Current account determinants and external sustainability in periods of structural change

The aim of this paper is to study the main macroeconomic, financial and structural factors that shaped current account developments in Greece over the period from 1960 to 2007 and discuss these developments in relation to the issue of external sustainability. Concerns over Greece’s external sustainability have emerged since 1999 when the current account deficit widened substantially and exhibited high persistence. The empirical model used, which theoretically rests on the intertemporal approach, treats the current account as the gap between domestic saving and investment. We examine the behaviour of the current account in the long run and the short run using co-integration analysis and a variety of econometric tests to account for the effect of significant structural changes in the period under review. We find that a stable equilibrium current account model can be derived if the ratio of private sector financing to GDP, as a proxy for financial liberalisation, is included in the specification. Policy options to restore the country’s external sustainability are explored based on the estimated equilibrium model.     

Multisectoral econometric models of the centrally planned economies and the disequilibria

The paper provides a systematic analysis of the properties of large econometric macro models built for the Centrally Planned economies of the '70s and '80s. A specific typology of macro models is introduced, distinguishing between the demand and quasi-demand determined systems on the one hand and the supply and quasi-supply determined systems on the other, and also between complete and incomplete models specifying only one side of economic activities (i.e. generating either demand or supply). It is shown that, under the command type economy, the incomplete, fully supply determined systems prevailed, generating production and showing its allocation. The economic reforms of the '80s, which aimed at a slow transition towards market economies, brought about a tendency towards constructing complete quasi-supply determined systems (especially for Poland and the CSRS). Since, in principle, they were built for shortage economies, the model builders had to allow for unobservables (final and intermediate demand, capacity utilization) and, on the other hand, for an increasing role of the financial phenomena (including prices) and financial policy instruments. A summary of the applications of macro models in forecasting and policy simulations is provided and new tendencies associated with regaining economic equilibria and approaching the market mechanisms emerging in the period of transition are shown.     

The use of RAS and related models in manpower forecasting

With the increasing availability of statistics describing the occupational structures of different industries manpower forecasters are beginning to develop more sophisticated models. The economic rationale of such models has tended to be obscured by the mathematics involved and an understandable eagerness to put the data to use in forecasting. In addition, the systematic testing of the explanatory power of these models has been neglected where it has not been hampered by the shortage of data series. The RAS model has featured prominently in manpower discussions and this paper attempts an evaluation of its predictive ability and economic interpretation subject to the limits imposed by the data available for the British engineering industry. It is argued that such a model plays a useful initial role in the development of models for sectoral manpower forecasting but must lead on to a more sensitive treatment of the labour market and the decision problem of investing in human capital.     

Strategies in international regime negotiations: reflecting background conditions or shaping outcomes?

Negotiation behaviour is usually seen as an intervening variable—adapted to structural and institutional conditions, but with sufficient degrees of freedom to leave its own imprint on outcomes. Little is known, however, about the extent to which negotiation behaviour in fact shapes outcomes. This paper addresses that question, building on data from the Miles et al. (Environmental regime effectiveness: confronting theory with evidence. MIT Press, Cambridge, MA, 2002) environmental regimes project. Four main conclusions can be inferred from the analysis. First, the Miles et al. core model seems to account for a fair amount of the variance observed in the strategies adopted by “pushers” and “laggards,” but it also leaves ample scope for other explanations. Second, both of these groups respond to the choice of strategy made by the other. Third, adding negotiation strategies to the Miles et al. core model does not significantly change the conclusions obtained from that model itself. Finally, sometimes negotiation strategies—in particular combinations of strategies—nevertheless make a real difference, often through interplay with other factors. To better understand when and how this occurs, we need models that are more sophisticated and a combination of methodological tools designed for aggregating as well as separating effects.     

What went wrong with the Hungarian consumption function? An econometric investigation of the time series aggregate consumption function for Hungary for 1960–1989

The paper focuses on the time series aggregate consumption function for the Hungarian economy. The empirical econometric analysis presented produces several new results. First, it shows that the income and consumption variables used in this type of model by previous studies are I(2) variables. Consequently, error correction models formulated in terms of their first differences are mis-specified. Second, it provides a strong empirical evidence supporting the view that consumption (and thus saving) was (real) interest rate elastic during the period under investigation, having impact both on the long run and on the short relationships between income and consumption. Third, it provides empirical evidence on choosing the proper income variable in the consumption function. The model selection results clearly supports the model with unadjusted total real money income variable. Fourth, it shows that for the period 1960–1986 a correctly specified and stable error correction model can be established. Finally, the analysis shows that when used for the period beyond 1986, this model suffers from a structural break.     

Modeling Supreme Court Strategic Decision Making: The Congressional Constraint

This paper addresses the contradictory results obtained by Segal (1997) and Spiller and Gely (1992) concerning the impact of institutional constraints on the U.S. Supreme Court's decision making. By adapting the Spiller and Gely maximum likelihood model to the Segal dataset, we find support for the hypothesis that the Court adjusts its decisions to presidential and congressional preferences. Data from 1947 to 1992 indicate that the average probability of the Court being constrained has been approximately one‐third. Further, we show that the results obtained by Segal are the product of biases introduced by a misspecified econometric model. We also discuss how our estimation highlights the usefulness of Krehbiel's model of legislative decision making.     

MERGERS, STANDARD OF PROOF AND EXPERT ECONOMIC EVIDENCE

There is an increasing use of complex econometric modellingin EC merger control proceedings. The question is whether econometricsare subject to a standard of evidence similar to that applicableto facts and theories that the Commission traditionally usesand articulates in its merger decisions or whether there shouldbe some margin of discretion left to the Commission in the treatmentand handling of econometric evidence. In the former case, ECcourts would exert an intensive review of the Commission's useand articulation of econometric evidence. In the latter case,EC courts would adopt a rather deferential approach. While theissue has not yet been dealt with before EC courts, this articlesubmits that the Commission should use econometrics with cautionand, hence, should meet a relatively high evidentiary thresholdbefore admitting the results of econometric models into evidence.Several guiding principles of evidence are suggested, whichare not intended to negate the Commission's margin of discretion,but would, nevertheless, ensure that econometrics be subjectto a fairly high standard of proof.     

A small macro econometric model for Kazakhstan: a retrospective of alternative economic policies undertaken during the transition process

This paper presents a quarterly macro econometric model of Kazakhstan. The main goal is to provide a stylized representation of the Kazakh economy in order to simulate the consequences of several economic policies viewed by the authorities as essential during the period of transition to a market economy. The policy simulation potential of the model is illustrated by five types of simulations: interest rate shocks, foreign direct investment shocks, world oil price shocks, foreign demand shocks and nominal wages shocks. These sets of simulations show the importance of foreign direct investments in terms of theirs global positive effect, as well as the demand effect of an increase in the wages. We also find that effect of the tight monetary policy is not unambiguous; we argue that in some cases it is not the most efficient policy instrument to sustain the economy.     

Does the death penalty save lives?

Research Summary Economists have recently reexamined the “capital punishment deters homicide” thesis using modern econometric methods, with most studies reporting robust deterrent effects. The current study revisits this controversial question using annual state panel data from 1977 to 2006. Employing well‐known econometric procedures for panel data analysis, our results provide no empirical support for the argument that the existence or application of the death penalty deters prospective offenders from committing homicide. Policy Implications Although policymakers and the public can continue to base support for use of the death penalty on retribution, religion, or other justifications, defending its use based solely on its deterrent effect is contrary to the evidence presented here. At a minimum, policymakers should refrain from justifying its use by claiming that it is a deterrent to homicide and should consider less costly, more effective ways of addressing crime.     

行政诉讼目的新论——以行政诉讼结构转换为维度

行政诉讼目的是国家基于行政诉讼性质所确立的制度目标,它具有可预期性、人为设计性等特点。而行政诉讼性质由行政诉讼结构所决定。在行政诉讼结构转换中,作为行政诉讼主体结构部分的原告和法院以及被告、行政主体通过身份转换,对行政诉讼目的的构建产生根本性的功能意义。通过对四重关系的考察和行政诉讼结构转换的阐述,本文论述了行政诉讼的根本目的应该是保障行政相对人的合法权益。     

Practitioner perspectives on rapport building during child investigative interviews

The inclusion of a rapport phase with children in investigative interviews is considered best practice as research shows that this can improve the quality of information provided. However, the phenomenon of ‘psychological rapport’, as demonstrated in a person's behaviour, is less understood. Specifically, how do practitioners build rapport with children in the rapport phase? The aim of this paper is to provide information on the methods used by practitioners for building rapport with children, with an explanation of how they may influence communication. Nineteen Scottish practitioners (police officers and social workers) were interviewed about their experiences and approach to rapport building with children in investigative interviews. These interviews were qualitatively analysed using a grounded theory approach and produced a model for the relationship between psychological rapport and children's communication. According to this group of practitioners, rapport building acts as a ‘communication tool’ and is approached using three main strategies. These strategies involve using rapport to assess the child, adjust interview approach based on the assessment, and produce a change in the child's psychological state that facilitates communication. These findings have established practitioner understanding of rapport building and highlighted a number of areas that require further research.     

Case Processing Times in Three Courts

The time it takes a court to process its cases, a critical aspect of court performance, varies widely from case to case, from court to court, and within a given court as the court and its environment change over time. The sources of this variation, however, have remained largely obscure.
This paper examines the structural and case-level influences on processing times in three criminal courts experiencing structural changes, including a number of administrative reforms designed to reduce processing times. We find both similarities and differences between courts, but in general both many structural arrangements and many case characteristics affect processing times, with some case characteristics having different effects under different structural arrangements, and some structural arrangements affecting different sorts of cases differently. We conclude with a discussion of implications for court management.     

Economics of court performance: an empirical analysis

This paper proposes an empirical analysis of Spanish court performance using the economic approach. An econometric model will be estimated in order to answer two basic questions: (1) why some courts’ output it is greater than others? (2) Could courts produce a higher output using their actual resources? In addition it will be determine, by means of an analysis of variance (ANOVA), whether courts showing higher than average output have dictated resolutions with a higher reversal rate.     

Some fundamental properties of governmental expenditure patterns — Theory and evidence based on military expenditures

This paper shows that governmental defense expenditure patterns can be accurately modeled by the use of graph curves. This modeling is applicable to both individual weapon systems and entire military treasury code cost categories. The application of this model to the complete Air Force expenditure process suggests a fundamental theory of expenditures which should allow the forecasting of aggregate military defense expenditures in the presence of very sparse data.