This paper investigates the implications of the size of budget deficit in the open economy under perfect mobility of capital. For that purpose we construct a general equilibrium model with consumers maximizing the discounted utility of consumption, and firms maximizing profits. Government sets the size of the deficit relative to GDP and controls the structure of public debt. Using standard methods of optimal control theory we solve the model, i.e. we find explicit formulas for all trajectories and the level of welfare. Finally, we show that the higher the deficit-to-GDP ratio, the lower the welfare of consumers. Similarly, welfare increases with the share of foreign creditors in public debt.
The economic activity indicators in Poland during the years 1995‒2011 exhibit various cyclical patterns. Employing the Christiano – Fitzgerald band-pass filter and unobserved components model it is shown that the cyclical processes of Polish economic activity are driven by overlapping higher frequency fluctuations (3‒4 years) and longer cycles of 8.5 years. The cyclical fluctuations of construction, transportation and trade are dissimilar to gross value added. Economic activity in transportation leads and in construction lags the fluctuations of gross value added. Cyclical fluctuations of gross value added seem to be determined by industry and construction. Manufacturing, especially capital and intermediate goods fluctuations are responsible for the variation of industry. The production of non-durable consumer goods, energy and production of electric power are relatively the most desynchronized compared to industry. Production of electric power leads industrial production. Capital goods, intermediate goods and energy cycle phases are asymmetric – the slowdown lasts shorter and has higher amplitude compared to expansion. During the last crisis occurred the intensified variation of economic activity in Poland.
The paper discusses Bayesian productivity analysis of 27 EU Member States, USA, Japan and Switzerland. Bayesian Stochastic Frontier Analysis and a two-stage structural decomposition of output growth are used to trace sources of output growth. This allows us to separate the impacts of capital accumulation, labour growth, technical progress and technical efficiency change on economic development. Since estimates of the growth components are conditioned upon model parameterisation and the underlying assumptions, a number of possible specifications are considered. The best model for decomposing output growth is chosen based on the highest marginal data density, which is calculated using adjusted harmonic mean estimator.
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