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Resilience and Stability in New EU Economies

Paper Session

Saturday, Jan. 5, 2019 10:15 AM - 12:15 PM

Hyatt Regency Atlanta, Hanover D & E
Hosted By: Association for Comparative Economic Studies
  • Chair: Josef C. Brada, Arizona State University

A Regional Perspective on the Economic Resilience of Central and Eastern European Economies

Josef C. Brada
,
Arizona State University
Pawel Gajewski
,
University of Lodz
Ali M. Kutan
,
Southern Illinois University-Edwardsville

Abstract

Central and Eastern European (CEE) countries provide an excellent, yet underutilized, laboratory to investigate the determinants and mechanisms of regional economic resilience and how regional resilience shapes national resilience. Due to the substantial cross-regional disparities within East and Central European countries and the numerous commonalities in institutions, recent integration in to the global economy, economic structures and levels of income, etc., provide a rich variety in the outcomes and the drivers of resilience. This paper examines resilience at the regional (NUTS-2) level in 11 CEE countries to determine what shocks they have faced between 2004 and 2017, as well as their resilience, understood as (i) the ability of a regional economy to absorb a shock, i.e. remain near the pre-shock state and as (ii) the ability of a regional economy to rebound to its pre-shock state and the speed at which this occurs. Within this area, we also test for shifts in regional growth paths. Structural, demographic and institutional determinants are subsequently sought for the two dimensions of regional economic resilience.

Inequality, Autocracy and Sovereign Funds as Determinants of Foreign Portfolio Flows

David M. Kemme
,
University of Memphis
Bhavik Parikh
,
St. Francis Xavier University
Tanja Steigner
,
Emporia State University

Abstract

Country characteristics, i.e. income inequality, autocracy and sovereign wealth, are found to be important determinants of cross country equity flows. From a unique panel data set of 158 source countries and 34 OECD host countries for 2002-2013, controlling for other established determinants of FPI, we find that OECD host countries attract higher levels of FPI from source countries with high income inequality and sovereign wealth funds than otherwise comparable countries. These countries also do not invest via tax havens. Investors in autocracies, however, invest via tax havens to maintain anonymity and evade taxes. Our results are robust across many specifications, the financial crisis, the size of host country capital markets and the exclusion of the USA from the OECD host countries.

How Did Inflation Targeting Become a Credible Monetary Policy in Non-euro EU Countries?

Lucjan T. Orlowski
,
Sacred Heart University

Abstract

We argue that the actual or the ‘de facto’ inflation targeting in non-euro EU member countries began with the move toward flexible exchange rates and not with the official declaration of the ‘de jure’ inflation targeting. To prove this argument we devise a model of changes in short term interest rates (monetary policy benchmark rates) as a function of the exchange rate gap and the inflation gap. The model is tested for the non-euro EU economies that have officially adopted inflation targeting regimes on monthly data with the Bai-Perron multiple breakpoint regression and two-state Markov switching tests. The results show that all of them have pursed a credible ‘de facto’ inflation targeting since the official adoption of a flexible exchange rate.

Exchange rate comovements, hedging and volatility spillovers on new EU forex markets

Evzen Kocenda
,
Charles University
Michala Moravcová
,
Charles University

Abstract

We analyze time-varying exchange rate co-movements, hedging ratios, and volatility spillovers on the new EU forex markets during 1999M1-2018M5. We document significant differences in the extent of currency comovements during various periods of market distress that are related to real economic and financial events. These imply favorable diversification benefits: the hedge-ratio calculations show all three currencies bring hedging benefits during crisis periods, but at different costs. During calm periods, most of the volatilities are due to each currency’s own history. During the distress periods, volatility spillovers among currencies increase substantially and the Hungarian currency assumes a leading role.
Discussant(s)
Krzysztof Jajuga
,
Wroclaw University of Economics
Marjan Petreski
,
University American College Skopje
Karsten Staehr
,
Tallinn University of Technology
JEL Classifications
  • E4 - Money and Interest Rates
  • F1 - Trade