Resilience and Stability in New EU Economies
Saturday, Jan. 5, 2019 10:15 AM - 12:15 PM
- Chair: Josef C. Brada, Arizona State University
Inequality, Autocracy and Sovereign Funds as Determinants of Foreign Portfolio Flows
AbstractCountry 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?
AbstractWe 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
AbstractWe 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.
- E4 - Money and Interest Rates
- F1 - Trade