Bayesian Econometrics Research Papers - Academia.edu (original) (raw)

The present book shows the results of the work undertaken by the research group made of students of the Lazarski University in collaboration with the students of the Cracow University of Economics. The research group has been working since 2015 till 2018 under the patronage of Applied Economics Institute, and since 2019 under the patronage of the Department of Econometrics both led by doctor Krzysztof Beck. The main aim of the research group revolved around attempts of resolving problems of international economics with the use of the most modern econometrics tolls available. Nowadays, we live in the world characterized by intensifying path of globalization and close links between social, political, and economic factors. This fact, with no doubts, contributes to the complexity of economic environment, posing new questions to answer and new tasks to resolve. Among others, the policy makers need to address issues such as international trade strategic policy under the condition of military conflicts and political instability, increasing inequality on the global and national scale, the threats of political populism, the consequences of supply-side shocks, and the way migration transforms national labor markets. Form this perspective, the role of the researcher cannot be limited to one discipline or area or interest; instead, one should be able to see the cross-dependencies between political, economic, and social environment in order to derive senseful conclusions and propose proper policy. At the same time, the reader would probably agree that modern economists should recognise their responsibility towards the society, which lies mainly in producing reliable results based on solid analysis. Unfortunately, the majority of contemporary research papers do not show any attempt to combine flexibility in terms of inter-disciplinary approach with uncompromisingly solid-based quantitative analysis. The problem discussed above is not a new issue. For instance, Leontief (1982) concerns the tendency towards “formalization” of economic science, which implies deriving reasonable, yet inapplicable conclusions from the economic analysis. Page after page of professional economic journals are filled with mathematical formulas leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions...Year after year economic theorists continue to produce scores of mathematical models and to explore in great detail their formal properties; and the econometricians fit algebraic functions of all possible shapes to essentially the same sets of data without being able to advance, in any perceptible way, a systematic understanding of the structure and the operations of a real economic system (Leontief, 1982, p. 104). Rubinstein (1995) also highlights the inconsistency between economic theories and reality. The very basic definition of economics states that it is the field of science dealing with efficient utilization of resources under the condition of their scarcity. Nevertheless, such an optimization is commonly analyzed from the purely theorical perspective and neglecting real-life aspects of economics. Albeit theoretical analysis is crucial at some stages of policy formulation, the primary aim of economics is still “achieving practical goals”. The issue of interpreting economic theory is, in my opinion, the most serious problem now facing economic theorists. The feeling among many of us can be summarized as follows. Economic theory should deal with the real world. It is not a branch of abstract mathematics even though it utilizes abstract tools. Since it is about the real world, people expect the theory to prove useful in achieving practical goals. But economic theory has not delivered the goods. Predictions from economic theory are not nearly as accurate as those by the natural sciences, and the link between economic theory and practical problems, such as how to bargain, is tenuous at best. Although I have never heard an economist seriously claim that the Nash bargaining solution is a good predictor of bargaining in real markets, this solution is a standard tool in modelling interactions among negotiators. Economic theory lacks a consensus as to its purpose and interpretation. Again and again, we find ourselves asking the question ‘Where does it lead?’ (Rubinstein, 1995, p. 12). Lawson (2001) suggests that one of the ways to resolve this problem of modern economics is to apply the approach of instrumentationalism described by Karl Popper (1963). The latter author argues that any theory “should be interpreted as an instrument, and nothing but an instrument, for the deduction of predictions of future events (especially measurements) and for other practical applications (p. 111). The discussion presented above under no condition attempts to criticize the practice of applying sophisticated statistical/mathematical tools in the field of economic analysis. Nevertheless, it is crucial to account for the complexity of social and economic environment instead of ignoring them for the sake of obtaining more elegant solutions. What is more, although theoretical analysis is crucial for economics, one should not forget this science had been developed for the sake of resolving practical problems. The papers presented in this issue are related to different topics. Nevertheless, they have something in common: all the authors attempt to resolve the crucial international economics problem from the perspective of inter-disciplinary approach and using sophisticated statistical methods. Although these researchers can be referred as the first serious studies conducted by the university students, all of them maintain high standards of academic honesty and quality of the analysis.