DOES THE LAUNCH OF THE EURO HINDER THE CURRENT ACCOUNT ADJUSTMENT OF THE EUROZONE?

This paper examines current account adjustments before and after the launch of the euro. Applying a dynamic panel model, we provide robust evidence to support that the adoption of the euro facilitates rather than hinders the adjustment of current accounts. This finding agrees with our results that the use of the euro assists real exchange rate and inflation rate adjustments. We also find that the independence of exchange rate regimes from current account, real exchange rate and inflation rate adjustments is observed when standard panel estimation methods are applied and when time‐varying smooth shifts in mean are not controlled. (JEL C33, F32, F41)     

Seasonalities in Eastern Foreign Exchange Markets: A Barrier to Euro Adoption?

Plans for an early adoption of the euro by some new EU members hang on political will and a set of nominal criteria. The focus, however, should be on the available adjustment mechanisms supporting a permanently fixed exchange rate. Efficient financial markets could provide stabilisation (following a shock), substituting the weakened array of traditional policy instruments. In order to assess the availability of such alternative, this paper presents a particular empirical analysis of efficiency in the foreign exchange markets of three recently acceded countries. The results suggest that some caution is needed in the transition towards full monetary integration, as the level of financial efficiency already attained may be insufficient to ensure an adequate source of stabilisation in economies affected by specific disturbances.      

Asymmetric Preference and Inflation Bias in the Visegrad Four

This paper investigates the asymmetric preference of monetary policy in the Visegrad four (V-4). To this end, we estimate the nonlinear interest rate rule provided by Surico (2007). This enables us to estimate the central banker’s preference and to inference the average inflation bias. Empirical results provide some important evidence. First, the nonlinear rule and the preference are successfully estimated. This also imply that the average rates of inflation in the V-4 are set at a relatively high by their monetary policy. Second, After EU accession, the preferences of Slovakia and Poland become much lower than those in the full sample. This reflects the policy effort by these two to introduce the euro.     

How To Prepare the EU Integration: Banking System, Monetary Policy, and Exchange Rate in Macedonia

The significant progress in the reform of the financial sector, including the amendments to the banking law and the reinforcement of the deposit insurance scheme, has been reflected in increased confidence in the Macedonia banking sector. Monetary policy and exchange rates represent a crucial aspect for the countries of Southeast Europe which would like to position themselves on the threshold of negotiations on their accession to the European Union. In the case of Macedonia, which has already formally applied for EU membership, a very cautious approach has to be taken in order to facilitate the stability of the economic system as a whole. Such a policy will make an important contribution to the stabilization of the whole West Balkan area and in particular to the quadrangle of Albania, Kosovo, Montenegro, and Serbia. The preparation of a favourable ground for EU membership negotiations leads first and foremost through a strict monetary and exchange rate policy, which the National Bank is pursuing firmly. Macedonia is now facing optimal conditions for creating the prerequisites for a faster negotiation with less rigorous internal repercussions of the pre-adhesion period. One should not forget the indirect impact of the shadow economy in the general context of efficiency of the instruments of economic and monetary policy. Finally, there is the question to be answered on the interrelation existing between transmission mechanisms linking productivity to the real exchange rate in Macedonia. At first glance, the stylized facts – low labor productivity growth and a trend of real depreciation – could even suggest that a Balassa–Samuelson effect is in play. But the depreciation of the real exchange rate could reflect mainly the behaviour of prices in the tradable sector and a prolonged transition associated with slow technological growth and the low quality of the country's tradable-goods basket.     

A clash of civilizations? Examining liberal‐democratic values in Turkey and the European Union1

Turkey's proposed entry into the European Union (EU) has been undermined by Europeans’ perceptions of Turkish–European cultural differences, particularly regarding the liberal‐democratic values that the EU promotes (democracy, rule of law, and respect for and appreciation of minority/human rights). Yet, cross‐national research on values has not focused on Turkey, the EU, and these liberal‐democratic values, leaving assumptions of cultural differences and their explanations untested. Through analyses of World and European Values Survey data (1999–2002), this article asks whether people in Turkey have the same values regarding democracy, rule of law (versus religious and authoritarian rule), and minority/human rights as people in EU member and candidate states (as of 2000)? What factors explain these values? I find that people in Turkey support democracy to the same extent as people in EU member and candidate states, but people in Turkey are more supportive of religious and authoritarian rule and are less tolerant of minorities. Although the ‘clash of civilizations’ thesis expects liberal values to be ordered according to countries’ religious traditions, with western Christian the most supportive and Islamic the least, only for tolerance of minorities values is this pattern found. Instead, economic development most consistently explains differences between Turkey and EU member and candidate states in support for these values. I conclude with calls for theoretical refinement, particularly of the clash of civilizations thesis, along with suggestions for future research to examine more Muslim and Orthodox countries; I discuss the debate over Turkey's EU entry.     

Monetary Fundamentals and Exchange Rate Dynamics under Different Nominal Regimes

We investigate the dynamic relationship between the U.S. dollar exchange rate and its fundamentals across different exchange rate regimes using data from the late 1800s or early 1900s for six countries. For these countries there is evidence of a long-run relation between the exchange rate and monetary fundamentals consistent with conventional exchange rate theories. Employing a multivariate regime-switching framework, we find that the relative importance of exchange rates and fundamentals in restoring the long-run equilibrium implied by the exchange rate–monetary fundamentals model varies significantly over time and is affected by the exchange rate regime in operation. (JEL F31 )     

A LONG-RUN VIEW OF GERMAN DOMINANCE AND THE DEGREE OF POLICY CONVERGENCE IN THE EMS

A preliminary for European monetary union is convergence of the European Monetary System's members' policies. Using a cointegration framework with short-term interest rates and monetary bases as monetary policy measures, we find policy convergence has not occurred. Nor, contrary to popular belief, does the Bundesbank dominate other members' policies. Although the Bundesbank is influential, substantial policy interaction occurs among almost all the EMS countries examined. Finally, the "credibility" argument, that pegged exchange rate systems constrain and discipline monetary policymakers behavior, is undermined by our findings.     

PURCHASING POWER PARITY AND BLACK-MARKET EXCHANGE RATES

This paper develops a theory of black-market exchange rate determination as a function of the market-clearing rate, the official rate and changes in official reserve levels. The model is tested for three countries over the period 1952–1971 by using purchasing-power-parity calculations as approximations of the equilibrium rate. The results indicate that relative rates of inflation are the dominant forces influencing equilibrium exchange rates.     

ECONOMIC EFFECTS OF CURRENCY UNIONS

We develop a new instrumental-variable (IV) approach to estimate the effects of different exchange rate regimes on bilateral outcomes. The basic idea is that the characteristics of the exchange rate between two countries are partially related to the independent decisions of these countries to peg—explicitly or de facto—to a third currency, notably that of a main anchor. This component of the exchange rate regime can be used as an IV in regressions of bilateral outcomes. We apply the methodology to study the economic effects of currency unions. The likelihood that two countries independently adopt the currency of the same anchor country is used as an instrument for whether they share a common currency. We find that sharing a common currency enhances trade, increases price comovements, and decreases the comovement of real gross domestic product shocks. ( JEL C3, F3, F4)     

Roles of Stock Price and Exchange Rate in Slovakia's Money Demand Function and Policy Implications

The demand for real M1 in Slovakia is positively influenced by real output and the stock price and negatively associated with the deposit rate, depreciation of the koruna, the euro interest rate, and the expected inflation rate. Considering the goods and the money market simultaneously, these results suggest that a higher stock price may or may not cause real output to rise and that a depreciation of the koruna or a higher euro interest rate would help raise Slovakia's real output. The coefficients of the deposit rate and the stock price in real M2 demand are insignificant at the 10% level. The likelihood ratio test in the extended Box–Cox model shows that the double-log form cannot be rejected at the 5% level while the linear form can be rejected at the 5% level. The CUSUM and CUSUMSQ tests show that the money demand function was relatively stable.      

EU Accession, Financial Integration, and Contagion Effects: Dynamic Correlation Analysis of CEEC-3 Bond Markets

In this paper, we investigate the conditional correlations between the bond markets in CEEC-3 (i.e., Poland, Czech Republic, and Hungary) and Germany from 2000 to 2013 using the asymmetric dynamic conditional correlation model developed by Cappiello et al. (J Financ Econ 4:557–572, 2006). CEEC-3 comprise emerging transition economies that became European Union (EU) members in 2004, while Germany serves as a representative of the EU because it is the largest economy in the eurozone. Based on the presented analytical models, we make four important findings. First, we show that financial integration had already evolved before the adoption of the euro in 2004 in the Czech Republic, while the financial integration process continues in Poland but not in Hungary. Second, the bond markets in both Poland and Hungary decreased their dependence on that in Germany during the global financial crisis period. Third, financial contagion did not occur in the bond markets in CEEC-3 and Germany during the European sovereign debt crisis period. Finally, we can observe asymmetric effects on returns over time when markets fluctuate sharply.     

FINANCIAL RESTRAINTS AND PRIVATE INVESTMENT: EVIDENCE FROM A NONSTATIONARY PANEL

We employ recently developed panel data methods to estimate a model of private investment under financial restraints for 20 developing countries using annual data for 1972–2000. We show that the qualitative nature of the results varies depending on whether we take into account cross‐country effects. When we allow for cross‐sectional dependence, investment displays more sensitivity to world capital market conditions and exchange rate uncertainty. A perhaps even more surprising result is the finding that countries that managed to suppress domestic real interest rates without generating high inflation enjoyed higher levels of private investment than those that would have been obtained under liberalized conditions. (JEL O16, G18, G28)     

Transnationale Lohnkoordination zur Stabilisierung des Euro? Gab es nicht,gibt es nicht,wird es nicht geben

Nominal de- and revaluations are impossible in currency unions. In order to prevent current account imbalances, the euro therefore requires the transnational synchronization of labor cost increases. Since the 1990s and especially since the introduction of the euro, European trade unions have announced their goal of coordinating their wage demands transnationally. Such announcements continue even though wage coordination continually fails. Pragmatist action theory makes us aware that actors solve the discrepancy between the desirable and the doable by de-coupling talk and action and that current attempts mainly aim at keeping the possibility of effective wage coordination a goal for the distant future. In the short and middle run, in contrast, nothing indicates that the distorted real exchange rates from which the eurozone suffers could be corrected by the means of wage coordination. The euro therefore lacks the crucial precondition for low-friction functioning.     

The Anticipated Effects of EU Enlargement: Exchange Rate Volatility,Institutions and Conditional Convergence

Improvement of economic policies and institutions and reduced exchange rate volatility are two expected effects arising when candidates develop prerequisites needed to qualify for EU membership. In this paper, we evaluate whether these two effects occurred in the Eastern European accession countries by inspecting exchange rate volatility and the evolution of different indicators of the quality of institutions before and after the start of the negotiation period. We then evaluate the impact of both effects on growth of real per capita GDP. By comparing the effects on accession countries to a group of control countries, including transition non candidates, we find that the prospect of accession has a significant effect on output growth, which starts materializing much before accession and even before the beginning of the negotiations with the EU.

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Estimates of Money Demand Functions for Estonia

This paper examines the money demand function of Estonia in the period 1995–2006. Since Estonia has a currency board system, euro area interest rates are taken into account. We apply different cointegration procedures like the Engle–Granger, the dynamic OLS, and the Johansen procedure to estimate the long-run relationship among money, output, and interest rates. The results show that it is difficult to find a cointegrating relationship for the broad money aggregate M2. For the preferred relationship including euro area money market rate and euro area bond rate a dynamic equation is estimated. This dynamic equation is stable for the whole period. The change of the anchor curreny in the currency board and the accession to the European Union do not alter the relationship.      

Cost–Benefit Analysis and the Rates of Return of Infrastructure Projects: Evidence from International Organizations

In this paper we analyse data on the rates of return of investment projects sponsored by three international institutions: the European Union (EU), the European Bank for Reconstruction and Development (EBRD), the World Bank (WB). The focus of the paper is on the variability of ex-ante economic rate of returns (ERR), of financial rates of return (FRR, available for EU and EBRD) and ex-post or re-estimated economic rates of return (RERR, available for WB only), along with the co-financing rate (EU). We propose a framework of analysis of FRR and ERR variations across projects, sectors, financing institutions and time, of the wedge between ERR and FRR, and of the gap between ERR and RERR. Our main conclusions are that the informational content of projects’ rates of return is valuable and is needed for cost–benefit analyses, and that sectors, countries, time and funding institutions explain much of the variability of these rates. We advocate the collection of standardized and comparable data since our framework could be used for comparing rates of return variability of development projects across countries, time of approval or completion, or any other relevant sampling criterion.     

The Behavioral Equilibrium Exchange Rate of the Czech Koruna

The behavioral equilibrium exchange rate (BEER) model of the Czech koruna is derived in this paper and estimated by three methods suitable for nonstationary time series. The considered potential determinants of the real equilibrium exchange rate are the productivity differential, the interest rate differential, the terms of trade, net foreign direct investment, net foreign assets, government consumption, and the degree of openness. We find that the Czech koruna was on average undervalued over the period from 1994 to 2004 by about 7 percent with respect to the estimated BEER. The significant determinants of the equilibrium exchange rate of the Czech koruna appear to be the productivity differential, the real interest rate differential, the terms of trade, and the net foreign direct investment.     

DOES EXCHANGE RATE APPRECIATION ‘DEINDUSTRIALIZE’ THE OPEN ECONOMY? A CRITIQUE OF U.S. EVIDENCE

This paper takes a critical look at the conventional view that the dollar exchange rate appreciation during the early 1980s caused a major resource shift in the U.S. economy away from tradables production, such as manufactures, toward nontradables production. We argue that the association of a dollar appreciation with relative strength or weakness in the tradable goods sector depends on the particular shock causing the appreciation, and consequently that the relation between exchange rates and the sectoral composition of output is unlikely to be stable over time. Our empirical analysis finds evidence of instability in the exchange rate–sectoral output link and of a positive association between tradables output and fiscal stimulus.     

The Relationship Between Military Spending and Black Market Premium in Greece: An ARDL Approach

Recently, there are a few empirical studies relating to the military spending and other macro variables such as real exchange rate, unemployment rates, investment rates, budget, and inflation rates. We examine the relationship between military spending and black market premium, in the Greece using the autoregressive distributed lag approach for the time period 1954?C1998. Our results implied that higher military spending leads to higher black market premium and we concluded that while military spending does not Granger cause black market premium in the short run, black market premium does Granger cause military spending in the short run. When we examine the long-run results, ELC model implies that almost 30?% of the disequilibrium of the previous year??s shocks adjusts back to the long run equilibrium.     

Impact of the EU Structural Funds on Financial Capacities of Non-profit Organizations

To fulfil their role, non-profit organizations (NPOs) need sufficient capacities. These include, first and foremost, financial capacity. EU Cohesion Policy commands financial resources of 351.8 bn. EUR. The EU is also willing to support NPOs from this source. With such considerable funding, the research questions arise: How much money have NPOs received? What are the effects of such assistance on the financial capacities of NPOs? On a sample of 2715 non-profit organizations in the Czech Republic, we have found that EU subsidies have a positive impact on financial capacities, measured as real assets. It is caused by using EU funds for investment. We have not proved an effect on short-term financial capacities measured on revenues. Moreover, the distribution of financial support among PBOs is unequal as 4% of NPOs collected 80% of subsidies due to differences in skills among NPOs’ managers.