This paper presents an empirical investigation of the disequilibrium hypothesis on the Polish loan market in the 1990s. Using data over this period of deep transition, we estimate a disequilibrium model with a standard maximum likelihood method. However, the estimates are highly counter-intuitive as regards the timing of the identified regimes. We show that the gap between the econometric evidence and the expected results may stem from the issue of stochastic non-stationarity in a disequilibrium setting based on the “min” condition. We find that the omission of one non-stationary variable of the cointegrating space or the absence of a “structural” cointegrating relationship in one or both regimes lead to a spurious configuration. In such a case, using, wrongly, the standard likelihood function, derived under the hypothesis of stationarity, may lead to non-convergent estimates of structural parameters and, as a consequence, to a fallacious regimes identification. Therefore, as the first approach to this issue, we estimate a disequilibrium model with stationary data. The empirical results are then robust and economically founded and correspond to the set and the timing of anticipated regimes.
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Length: 29 pages Date of creation: 01 Jun 2003 Date of revision: Handle: RePEc:wdi:papers:2003-581
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Find related papers by JEL classification: D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions P00 - Economic Systems - - General - - - General
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