The phenomenon of manipulation of the economy by the incumbent for electoral purpose is called
Political Business Cycles (PBC). Using policy control economic instruments, such as fiscal and monetary
instruments, governments may manipulate the economy to gain electoral advantage by producing growth
and decreasing unemployment before elections.
Earlier research on PBC in Albania found clear evidence of fiscal expansion before elections. In addition
to increased income from taxes and borrowing, another source of financing the increased fiscal expansion
in transition countries may be income from privatization, which is also the object of the analysis of this
paper. In our analysis we apply standard econometric approach, used widely for research related to PBC.
We test if income from privatization increases before elections.
We find statistically significant increase of income from privatization before general (parliamentary)
elections, which may lead us to conclude that one of the reasons may be to finance increased expenditures
before elections. Another motivation, behind this behavior of the incumbent, may be rent – seeking.
These results are of particular interest, as it is for the first time that income from privatization is analyzed
in conjunction with PBC.
In the framework of small-scale agent-based financial market models, the paper starts
out from the concept of structural stochastic volatility, which derives from different noise
levels in the demand of fundamentalists and chartists and the time-varying market shares
of the two groups. It advances several different specifications of the endogenous switching
between the trading strategies and then estimates these models by the method of simulated
moments (MSM), where the choice of the moments reflects the basic stylized facts
of the daily returns of a stock market index. In addition to the standard version of MSM
with a quadratic loss function, we also take into account how often a great number of
Monte Carlo simulation runs happen to yield moments that are all contained within their
empirical confidence intervals. The model contest along these lines reveals a strong role
for a (tamed) herding component. The quantitative performance of the winner model is
so good that it may provide a standard for future research.