Economics and Information Theory

Organization for Economic Cooperation and Development (OECD)

We review the literature on business cycle correlation between the euro area and the Central and Eastern European countries (CEECs), a topic that has gained attention as the newest EU members approach monetary union. Our meta-analysis of 35 identified publications suggests some CEECs already have comparably high correlation with the euro area business cycle. We find that estimation methodologies can have a significant effect on correlation coefficients. While CEEC central bankers tend to be more conservative in their estimates than academics or eurosystem researchers, we find no evidence of a geographical bias in the studies.

Meta-Analysis of the Business Cycle Correlation Between the Euro Area and the CEECs

https://www.econstor.eu/bitstream/10419/19157/1/cesifo1_wp1693.pdf

Meta-analysis of the business cycle correlation between the Euro Area and the CEECs

The sovereign debt crisis is due to two major flaws of the euro area’s architecture: a doomed approach to fiscal discipline and the lack of a banking union. Adopting a complete banking union has always been a requirement and is now urgently needed. The continuous additions of measures designed to strengthen the Stability and Growth Pact (SGP) will fail because this centralised approach is incompatible with budgetary sovereignty. The decentralised approach requires an unbreakable commitment to the no-bailout rule. The other proposals are not justified by economic principles. They may be justified by a political vision, we need more Europe. The timing of this proposals is worrisome, however, as we face a previously unheard loss of public trust in the European institutions.

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Directorate general for internal policies policy department a: economic and scientific policy

The purpose of this study is to review the existing literature on transmission mechanism in CEE and put it in a broader context of the problems related to research on monetary policy. Also, we attempted to conduct empirical analysis for 10 transition economies using analogous methodology for the same sample period 1995-2000. In this comparative framework a series of Granger causality tests and impulse response analysis were carried out to asses the strength of two major transmission channels: interest rate and exchange rate channel. Also in the empirical part, we tried to look for the existence of long-run relationships between the basic set of macroeconomic variables in the countries under investigation.

Transmission Mechanism of Monetary Policy in Centraland Eastern Europe

As more central banks across Central and Eastern Europe (CEE) move towards inflation control - either in the form of direct inflation targeting or indirectly through informal targets - good knowledge of transmission mechanism in the economy becomes crucial for implementing good policies. So far the volume of studies in the region devoted to this issue is not overly impressive. There have been no attempts made to study the issue in a comparative context of several economies. In the case of CEE, this research field, like many others, is naturally constrained by at least two important factors. The first is the lack of data in terms of both length of time series and of quality and reliability. The second is the constant institutional changes in the studied environment which renders the different models and techniques structurally unstable and the results - generally volatile. The purpose of this study is to review the existing literature on transmission mechanism in CEE and put it in a broader context of the problems related to research on monetary policy. Also, we attempted to conduct empirical analysis for 10 transition economies using analogous methodology for the same sample period 1995-2000. In this comparative framework a series of Granger causality tests and impulse response analysis were carried out to asses the strength of two major transmission channels: interest rate and exchange rate channel. Also in the empirical part, we tried to look for the existence of long-run relationships between the basic set of macroeconomic variables in the countries under investigation. The paper is composed as follows. Chapter 2 briefly reviews the transmission mechanism research in CEE with special emphasis on the origin of studies, methods used and general inferences. Then, chapter 3 presents a problembased discussion of issues related to transmission mechanism in the special context of transition economies. Goals, targets and tools of monetary policy as well a exchange rate regimes are reviewed and discussed. Chapters 4 and 5 present empirical results. Chapter 4 describes core inflation estimates and selection process as well as presents all remaining variables and tests for the level of integration. Chapter 5 includes the empirical analysis of transmission mechanism through Granger causality and impulse responses as well as cointegration analysis. Finally, chapter 7 concludes the paper with summary of results.

/pdf/transmission-mechanism-of-monetary-policy-in-central-and-fellyqw2os.pdf

Transmission Mechanism of Monetary Policy in Central and Eastern Europe

This paper investigates the effects of EU enlargement on price convergence. The internal market is expected to boost integration and increase efficiency and welfare through a convergence of prices in product markets. Two principal drivers are crucial to explain price developments. On one hand, higher competition exerts downward pressure on prices because of lower markups. On the other hand, the catching-up process of lowincome countries leads to a rise in price levels and higher inflation over a transition period. Using comparative price levels for forty-one product categories, price convergence can be established. However, the speed of convergence is rather slow, with half-lives of approximately ten years. The enlargement has stimulated convergence slightly toward the mean price; this effect is robust across different groups of countries. Moreover, the driving forces of convergence are explored. In line with theoretical predictions, the rise in competition exerts downward pressure on prices, whereas catc...

/pdf/price-convergence-in-the-enlarged-internal-market-24n85hul3s.pdf

Price convergence in the enlarged internal market

This study investigates the HBS effect in a panel of nine CEECs during 1993:Q1-2003:Q4 (unbalanced panel). Prior to estimating the model, we analyze several key assumptions of the model (e.g. wage equalisation, PPP and sectoral division) and elaborate on possible consequences of their failure to hold. In the empirical part of the paper, we check the level of integration of the variables in our panel using the Pedroni panel-stationarity tests. We then investigate the internal and external version of the HBS effect with the Pedroni panel-cointegration tests as well as by means of group-mean FMOLS and PMGE estimations to conclude that there is a strong evidence in support of the internal HBS and ambiguous evidence regarding the external HBS. Our estimates of the size of inflation and real appreciation consistent with the HBS effect turned out generally within the range of previous estimates in the literature (0-3 % per annum). However, we warn against drawing automatic policy conclusions based on these figures due to very strong assumptions on which they rest (which may not be met in near future). Finally, following the hypotheses put forward in the literature, we elaborate and attempt to evaluate empirically the potential impact of exchange rate regimes on the magnitude of the HBS effect.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1414893_code1239313.pdf?abstractid=1414893&mirid=1&type=2

Harrod-Balassa-Samuelson Effect in Selected Countries of Central and Eastern Europe

The paper is organized as follows: Section 2 discusses briefly two main groups of theories that link inflation and relative price variability and provides a sketch of a survey of the literature. Section 3 takes on Ball and Mankiw's models predicting the causality from relative price variability to inflation and discusses it in more detail. Section 4 provides a brief background of the factors underlying Polish relative price variability and empirical evidence on relative price behavior in Poland. The theoretical model as well as obtained regression results are discussed in section 5. Section 6 takes a closer look at relative price changes on a cumulative basis and section 7 introduces the Cukierman and Leiderman model of price controls with its policy-related implications. Finally, section 8 concludes with a summary of results, conclusions and a sketch of possible policy recommendation.

Przemyslaw Wozniak

Papers

Transmission Mechanism of Monetary Policy in Centraland Eastern Europe

Transmission Mechanism of Monetary Policy in Central and Eastern Europe

Price convergence in the enlarged internal market

Harrod-Balassa-Samuelson Effect in Selected Countries of Central and Eastern Europe

Relative Prices and Inflation in Poland 1989-1997