Economic policy in central and eastern Europe : unit root consequences. (Polityka gospodarcza w Europie Środkowo-Wschodniej: konsekwencje pierwiastków jednostkowych)

This article aims to provide an econometric justi cation for economic policy in
the Central and Eastern European area by examining the stability of real GDP and industrial
production in the Czech Republic, Slovakia, Poland, and Hungary. Stability of GDP and
industrial production is examined by unit root tests. The Dickey-Fuller (1979) unit root
test indicates unit root in case of all four outputs. In case of the industrial production, the
results are mixed. Nonetheless, difference stationarity of the GDP implies that there is no
deterministic time trend in GDP. Therefore, there is no short-run trend reversion. Deep and
long recessions are not only possible but also even likely. Thus, actions of economic policy
can be regarded as justi ed because they are desirable to boost economy in order to reverse
these recessions. This study can also be regarded as an extension of unit root tests to the
post communist countries.