Financial integration of new EU Member States

This study assesses the degree of financial integration for a selected number of new EU member states between themselves and with the euro zone. Within the framework of a factor model for market returns, we measure integration as the amount of variance explained by the common factor relative to the local components. We show that this measure of integration coincides with return correlation. Correlations are proxied by comovements, estimated via a regression quantile-based methodology. We find that the largest new member states, the Czech Republic, Hungary and Poland, exhibit strong comovements both between themselves and with the euro area. As for smaller countries, only Estonia and to a less extent Cyprus show increased integration both with the euro zone and the block of large economies. In the bond markets, we document an increase in integration only for the Czech Republic versus Germany and Poland. JEL Classification: C32, F30, G12integration, new EU member states, regression quantile

Inflation forecasting in the new EU Member States

To the best of our knowledge, our paper is the first systematic study of the predictive power of monetary aggregates for future inflation for the cross section of New EU Member States. This paper provides stylized facts on monetary versus non-monetary (economic and fiscal) determinants of inflation in these countries as well as formal econometric evidence on the forecast performance of a large set of monetary and nonmonetary indicators. The forecast evaluation results suggest that, as has been found for other countries before, it is difficult to find models that significantly outperform a simple benchmark, especially at short forecast horizons. Nevertheless, monetary indicators are found to contain useful information for predicting inflation at longer (3-year) horizons. JEL Classification: C53, E31, E37, E51, E52, E62, P24Fiscal Policy, Inflation forecasting, information content of money, leading indicators, monetary policy, new EU member states

Aggregate Wage Flexibility in Selected New EU Member States

A fixed exchange rate regime eliminates one degree of freedom in absorbing macroeconomic shocks. Therefore, there is a call for higher labor market flexibility in countries which are members of the monetary union or those which intend to join the monetary union. Focusing on the cross-country analysis of labor markets in the enlarged European Union over 1995-2004, this paper aims to assess empirically the role of aggregate wages as a correction mechanism for dealing with economic disturbances. We apply classical time series/panel, Bayesian, and cointegration techniques to determine the extent to which aggregate wages can accommodate shocks in the economy.ERM-II, euro adoption, labor market, wage flexibility

Aggregate Wage Flexibility in Selected New EU Member States

A fixed exchange rate regime eliminates one degree of freedom in absorbing macroeconomic shocks. Therefore, there is a call for higher labor market flexibility in countries which are members of the monetary union or those which intend to join the monetary union. Focusing on the cross-country analysis of labor markets in the enlarged European Union, this paper aims to assess empirically the role of aggregate wages as a correction mechanism for dealing with economic disturbances. A comparable quarterly data-set is constructed covering 1995-2004 for four central European states (CE-4), four new EU members already participating in the Exchange Rate Mechanism-II (ERM-II participants), and three peripheral members of the euro area (EMU- 3). We apply classical time series/panel, Bayesian, and cointegration techniques to determine the extent to which aggregate wages can accommodate shocks in the economy. The macroeconomic data does not seem to support the argument that real wages are flexible in the CE-4, the ERM-II participants, and the EMU-3.. ERM-II, euro adoption, labor market, wage flexibility.

Extreme Coexceedances in New EU Member States' Stock Markets

We analyze the financial integration of the new European Union (EU) member states' stock markets using the negative (positive) coexceedance variable that counts the number of large negative (large positive) returns on a given day across the countries. We use a multinomial logit model to investigate how persistence, asset classes, and volatility are related to the coexceedance variables. We find that the effects differ (a) between negative and positive coexceedance variables (b) between old and new EU member states, and (c) before and after the EU enlargement in 2004 suggesting a closer connection of new EU stock markets to those in Western Europe.Financial market integration, Comovement, Emerging markets, EU enlargement, EU Member States, Extreme returns, New EU Member States, Stock Markets

Inflation persistence: euro area and new EU Member States

Is inflation persistence in the new EU Member States (NMS) comparable to that in the euro area countries? We argue that persistence may not be as different between the two country groups as one might expect. We confirm that one should work carefully with the usual estimation methods when analyzing the NMS, given the scope of the convergence process they went through. We show that due to frequent breaks in inflation time series in the NMS, parametric statistical measures assuming a constant mean deliver substantially higher persistence estimates for the NMS than for the euro area countries. Employing time-varying mean leads to the reversal of this result and suggests similar or lower inflation persistence for the NMS compared to euro area countries. Structural measures show that backward-looking behavior may be more important component in explaining inflation dynamics in the NMS than in the euro area countries. JEL Classification: E31, C22, C11, C32C11, C22, C32, JEL Classification: E31, Keywords: Inflation persistence, New Hybrid Phillips curve, new Member States, time-varying mean

What world of work in new EU member states?

"The years of transition in Central and Eastern Europe brought with them the unprecedented - in these societies - phenomenon of restructuring with dismissals and growing unemployment. Moreover with the emergence and development of the private sector, new enterprises started to leave former corporate models behind to adopt new forms of employment and working conditions arrangements to better adapt to the newly competitive environment. Further many of these countries have now joined the European Union and have started to progressively harmonize their labour laws to community legislation, something that should accelerate their economic and social catching-up process while profoundly influencing their World of work. However there is no much evidence collected so far an these countries' enterprise practices in terms of labour contracts, working time, and other working conditions something that this articles proposes to investigate more in depth. At enterprise level are the conditions at work following similar patterns in new EU member states? Have they started converging in a significant way towards EU standards? Or are they already following diverging trends in certain areas? What could be said about the general direction of the World of work in the EU 25?" (Author's abstract, IAB-Doku) ((en))Arbeitswelt - internationaler Vergleich, Arbeitsbedingungen, Arbeitszeit, Lohnentwicklung - internationaler Vergleich, Arbeitsbeziehungen, sozialer Dialog, osteuropäischer Transformationsprozess, Arbeitsrecht, Arbeitsintensität, unbezahlte Überstunden, atypische Beschäftigung, Beschäftigungsentwicklung, Arbeitssicherheit, soziale Situation, Beschäftigungseffekte, Arbeitsplatzabbau, Arbeitslosigkeitsentwicklung, informeller Sektor, Schattenwirtschaft, europäische Integration, Europäische Union, Mitteleuropa, Osteuropa

Interdependence Between Social Values and National Performance Indicators: The Case of the Enlarged European Union

Based on the desk research, the paper provides an empirical insight into correlations between some social values and five selected economic performance indicators for 20 European Union countries. We concentrated on Composite Trust. This is a one-dimensional representation of citizens’ trust on national level and is calculated from three different types of trust that van Oorschot and Arts (2005) derived from the European Values Study (2001). We confirmed correlations between trust and economic performance, but we have also noticed a very different pattern for the old and the new EU member states. The old EU member states show a positive correlation, on the other hand there is no such correlation for the new member states. A plausible hypothesis is that the same level of Composite Trust causes different effects in different societies and economies. We could also assume that social structures in the new EU member states are still distorted and are not in the equilibrium which characterizes EU countries with long democratic and market economy traditions. Economic performance in the new EU member states is based mainly on economic and not on social incentives. On the other hand, correlation between trust and innovativeness is strong in all studied countries. It confirms many studies which see trust as a fundamental social enabler and stimulator for innovativeness.trust, composite trust, social capital, social values, economic performance, innovativeness, European Union, new EU member states

Foreign currency borrowing of households in new EU member states

The post-Lehman phase of the financial crisis has exposed a number of weaknesses in the banking sectors of the European Union’s New Member States (NMSs). One of these is the prevalence of lending in foreign currency. While banks themselves in these countries have not taken on sizeable currency risk directly, they passed it on to households and the corporate sector. With large depreciations taking place or looming in the region, the currency risk at households and corporates without a natural hedge is now being transformed into credit risk for the banking sector. This is creating a serious problem in maintaining financial stability and cripples monetary policy in countries where it operates primarily through the exchange rate channel. The patterns of foreign currency lending to households in NMSs vary widely both across countries and time periods. For example, FX lending to households is virtually non-existent in the Czech Republic while in some Baltic countries its share is close to 100 per cent of total household lending. The main goal of the paper is (1) to present the stylised facts of pre-crisis FX lending in NMSs systematically and (2) to try to explain these differing patterns in an econometric model. In order to do so, a panel database of household FX borrowing is compiled, covering 10 NMSs in the period 1999-2008. Our estimation results suggest that the degree of household FX borrowing depends on the interest rate differential, the institutional features of mortgage financing and the monetary regime. Household FX borrowing tends to be less prevalent if the interest rate differential is small, fixed interest rate mortgage financing is available and the monetary authority’s “fear of floating” is low.foreign currency lending, new member states, credit risk, monetary policy