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Testing fiscal sustainability in Poland : a Bayesian analysis of cointegration

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Andrea, SILVESTRINI

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Abstract

Fiscal sustainability is a central topic for most of the transition economics of Eastern Europe. This paper focuses on a particular country : Poland. The main purpose is to investigate, empirically, whether the post-transition fiscal policy is consistent with the intertemporal budget constraint, used as a formal theoretical framework. To test debt stabilization, the empirical analysis is made in two steps in which different inferential approaches are adopted. In the first step we perform the preliminary unit roots analysis and the selection of the cointegation rank using parametric and bootstrap procedures. In the second step we apply Bayesian inference to the estimation of the cointegrating vector and of the adjustment parameters. In this way, we experiment the usefulness of Bayesian inference in precisely assessing the magnitude of the cointegrating vector. Moreover, we show to what extent the likelihood of the data is important in revising the available prior information, relying on numerical integration techniques.

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Publisher Info
Paper provided by Université catholique de Louvain, Département des Sciences Economiques in its series Discussion Papers (ECON - Département des Sciences Economiques) with number 2007040.

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Length: 42
Date of creation: 06 Dec 2007
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Handle: RePEc:ctl:louvec:2007040

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Related research
Keywords: Bayesian inference; fiscal sustainability; cointegration; bootstrap;

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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