Forecasting economies in transition: The case of Romania

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 extends the analysis of Hall (1993) by exploring the consequences of endemic structural change for forecasting and building structural econometric models. We propose a model formulation which makes the econometric model itself able to adjust its parameters in the light of economic change using the Kalman Filter. The paper then illustrates this approach by building a small model of Romania and investigating its forecasting properties.     

Book reviews

M.B. Hayne, The French Foreign Office and the Origins of the First World War 1898-1914 (Oxford: Clarendon Press, 1993) £35. ISBN 019-820270-9.

Keith Hamilton, Bertie of Thame: Edwardian Ambassador (Woodbridge/Suffolk: Boydell Press 1990 (= Royal Historical Society Studies in History, No. 60)), ix + 436 pp. ISBN 0-86193-217X. £35.

Anita Inder Singh, The Limits of British Influence: South Asia and the Anglo-American Relationship, 1947-56 (Pinter, 1993) pp. 309. £45.

Robert H. Ferrell (ed.), Truman in the White House: The Diary of Eben A. Ayers (Columbia: University of Missouri Press, 1991) $37.50. ISBN 0-8262-0790-1.

Robert Pearce (ed.), Patrick Gordon Walker: Political Diaries 1932-1971 (London: The Historians Press, 1991) £20. ISBN 1-872273-05 X.

Richard J. Aldrich (ed.), British Strategy and the Cold War, 1945-51 (London: Routledge, 1992) £40. ISBN 0-415-07851-2.

Timothy Garton Ash, In Europe's Name. Germany and the Divided Continent (London: Jonathan Cape, 1993) £25. ISBN 0-224-02054-4.     

Measuring the correlation of shocks between the EU15 and the new member countries

This paper considers the question of the symmetry of inflation, exchange rate changes and GDP shocks between the EU15 and the new member countries. It applies a relatively new technique, the orthogonal GARCH model, which allows us to calculate a complete time varying correlation matrix for these countries. We can then examine the way the conditional correlation of shocks between the EU15 and the new member countries has been evolving over time. Our results suggest that the shocks which hit the EU are not symmetrical with those affecting the majority of new member countries. In addition, most of the new member countries seem to exhibit relatively low correlation with EU15.     

Russian Voting and the Initial Economic Shock of Hyperinflation

This paper addresses the issue of economicvoting in transitional democracies using data from the Russianfederal elections. It argues that the shock of inflation thatfollowed the fundamental economic reform has a lastinginfluence on voters. Specifically, it shows that in Russia,where inflationary policy led to hyperinflation and thewidespread loss of personal savings, the magnitude of savingslost at that time continues to explain a significant portionof the variation in the regional support for the Communistparty in parliamentary and presidential elections.     

Linkages Among Poverty, Development, and Budget Systems

The achievement of economic growth and social equity in developing nations, whatever path they pursue, has been hampered by uncertainty, instability, and uncontrollability in budgeting. It appears likely that left to themselves, these budget systems will continue largely unchanged, with little or no progress toward eliminating poverty and advancing development. However, several options are available for restructuring budget systems through implementation of carefully devised systematic action plans.