Humanities and Social Sciences

Central European Journal of Economic Modelling and Econometrics

Content

Central European Journal of Economic Modelling and Econometrics | 2019 | No 3 |

Abstract

We introduce consumption habits into a real-business-cycle setup augmentedwith a detailed government sector. We calibrate the model to Bulgarian data forthe period following the introduction of the currency board arrangement (1999-2018). We investigate the quantitative importance of the presence of internalconsumption habits motive for the propagation cyclical fluctuations in Bulgaria.Allowing for internal habits in household’s consumption improves the modelperformance against data, and in addition this extended setup dominates thestandard RBC model framework without habits. Therefore, the computationalexperiments performed in this paper suggest that habits are a quantitativelyimportant model ingredient, which should be taken into consideration whenanalysing the effects of different policies in Bulgaria. This result can be viewedas an empirical validation of the habit model, and a rejection of the modelwithout habits in the case of Bulgaria. In addition, we also demonstrate thatinternal habits are quantitatively more important than external habits for theBulgarian business cycle.
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Abstract

The goal of the paper is to verify the direction of sovereign risk transmissionbetween sovereign CDS and sovereign bond markets in the Central Europeaneconomies: the Czech Republic, Hungary and Poland. We focus on the hecticcrisis period of 2008-2013. On the one hand, the sCDS market is said to reactfaster to the news than the sovereign bonds market. On the other hand, thebond market is related more closely to the internal situation of the country thanthe sCDS one and thus can price the sovereign risk more accurate. Moreover,the relationships between the markets can change during crisis time. We findthat in the case of most risky and most indebted economy in Hungary therewas a feedback between sCDS and sovereign bonds risk. In the case of PolandsCDS market risk Granger caused the risk of sovereign bonds – if we excludeinstantaneous causality from the analysis; when it is included, feedback occurred.Eventually, in the case of the Czech Republic the risk of sCDS market Grangercaused risk of the bonds market.
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Abstract

Hybrid MSV-MGARCH models, in particular the MSF-SBEKKspecification, proved useful in multivariate modelling of returns on financialand commodity markets. The initial MSF-MGARCH structure, called LN-MSF-MGARCH here, is obtained by multiplying the MGARCH conditionalcovariance matrixHtby a scalar random variablegtsuch that{lngt, t∈Z}is aGaussian AR(1) latent process with auto-regression parameterφ. Here we alsoconsider an IG-MSF-MGARCH specification, which is a hybrid generalisationof conditionally StudenttMGARCH models, since the latent process{gt}is nolonger marginally log-normal (LN), but forφ= 0it leads to an inverted gamma(IG) distribution forgtand to thet-MGARCH case. Ifφ6= 0, the latentvariablesgtare dependent, so (in comparison to thet-MGARCH specification)we get an additional source of dependence and one more parameter. Dueto the existence of latent processes, the Bayesian approach, equipped withMCMC simulation techniques, is a natural and feasible statistical tool to dealwith MSF-MGARCH models. In this paper we show how the distributionalassumptions for the latent process together with the specification of theprior density for its parameters affect posterior results, in particular theones related to adequacy of thet-MGARCH model. Our empirical findingsdemonstrate sensitivity of inference on the latent process and its parameters,but, fortunately, neither on volatility of the returns nor on their conditionalcorrelation. The new IG-MSF-MGARCH specification is based on a morevolatile latent process than the older LN-MSF-MGARCH structure, so thenew one may lead to lower values ofφ– even so low that they can justify thepopulart-MGARCH model.
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Editorial office

Editors

JACEK OSIEWALSKI, Cracow University of Economics, Poland
ALEKSANDER WELFE, University of Lodz, Poland

Co-Editors
MAŁGORZATA DOMAN, University of Economics, Poznań, Poland
RYSZARD DOMAN, Adam Mickiewicz University, Poznań, Poland
JAKUB GROWIEC, SGH Warsaw School of Economics, Poland
MAREK GRUSZCZYŃSKI, SGH Warsaw School of Economics, Poland
BOGUMIŁ KAMIŃSKI, SGH Warsaw School of Economics, Poland
MARCIN KOLASA, SGH Warsaw School of Economics, Poland

Contact

CEJEME Editorial Office - Ms. Karolina Jaszczyk, Polish Academy of Sciencies - Lodz Branch
Piotrkowska Str. 137/139, 90-434 Lodz, Poland
e-mail: cejeme@pan.pl

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