Monetary policy rules in a two-sector small open economy

The analysis of monetary policy rules has been confined to models not capable of examining situations where an economy is converging to a higher balanced growth path. For the small open economies having entered the European Union recently this is however a very relevant question. The main aim of their integration is convergence itself and most of the criteria they have to fulfil in order to become members of the euro zone are of monetary nature. It is thus of special interest for them whether and how the chosen strategy of monetary policy aiming at the fulfilment of the requirements they face affects the transition. In this paper a first attempt is made to compare monetary policy rules in a monetary model of small open economies, which builds essentially on the convergence literature. The results show that the economy behaves very differently in the transition under the different monetary policy rules examined. --

Orosz gazdasági növekedés az olajár alakulása és a gazdasági szankciók fényében

A Budapesti Corvinus Egyetem Pénzügy Tanszéke (ideértve az egyetem és a tanszék összes, az elmúlt évek, évtizedek során használt egyéb elnevezését is) számos generáció számára nehezen elképzelhető Bánfi Tamás nélkül. Az ő érdeklődése, szervezőkészsége, határozott elképzelései és ugyancsak határozott fellépése nagyban hozzájárultak ahhoz, hogy a tanszék ki tudta használni a változó korok kínálta lehetőségeket és komoly presztízsre tett szert a hazai oktatási piacon, kiépítve és megőrizve az egyetemen belüli hírnevét. A határozott, kemény karakter egy nagyon sokrétű személyiséget takar, rejtve a felületes szemlélő elől. Akinek megadatott, hogy (még ha rövid ideig is) együtt dolgozzon vele, az legalább ezeknek egy töredékébe bepillantást nyert, és felfedezhette, hogy valóban csak a töredékébe nyert bepillantást. Én dolgozhattam egy ideig a tanszéken és eközben láthattam a háttérbeli szervező munkájának és általános hozzáállásának hozadékát, elgondolkodásra késztettek jól feltett gazdasági kérdései és rácsodálkozhattam ösztönös rálátásaira, ráérzéseire gazdasági, makropénzügyi kérdésekben. Pragmatikus hozzáállásának pedig további pályám alakulását is részben köszönhetem, köszönöm

Monetary policy rules in a two-sector small open economy

The analysis of monetary policy rules has been confined to models not capable of examining situations where an economy is converging to a higher balanced growth path. For the small open economies having entered the European Union recently this is however a very relevant question. The main aim of their integration is convergence itself and most of the criteria they have to fulfil in order to become members of the euro zone are of monetary nature. It is thus of special interest for them whether and how the chosen strategy of monetary policy aiming at the fulfilment of the requirements they face affects the transition. In this paper a first attempt is made to compare monetary policy rules in a monetary model of small open economies, which builds essentially on the convergence literature. The results show that the economy behaves very differently in the transition under the different monetary policy rules examined

Trade with central and eastern Europe: Is it really a threat to wages in the west?

This paper analyses the relationship between openness to trade and wages at the industry level (15 manufacturing industries) in 25 EU countries over the period from 1995 to 2005. By applying a cross-country and industry-specific approach, it is possible to control for unobserved heterogeneity at both country and industry levels. We also differentiate between intra and inter-industry trade as well as between trade from western and eastern Europe and we try to assess the relative importance of foreign wages versus domestic productivity developments in an open environment. We find that trade is not an important driver of wages, since the wage response to trade is small. Moreover, in line with the Stolper-Samuelson reasoning, imports from the west generally benefit wages in central and eastern Europe, while imports from the east rather tend to harm wages in the west. The overall wage response is still negative in some sectors, particularly in more resource-based industries. Nevertheless, increased trade reinforces the productivity-wage link and weakens the co-movement of wages particularly in the west, while at the industry level there is little evidence of such a wage-disciplining effect of trade. JEL Classification: F14, F15, F16, J31bilateral trade, European Integration, industry level, openness, wage discipline, Wages

Trade with central and eastern Europe: Is it really a threat to wages in the west?

This paper analyses the relationship between openness to trade and wages at the industry level (15 manufacturing industries) in 25 EU countries over the period from 1995 to 2005. By applying a cross-country and industry-specific approach, it is possible to control for unobserved heterogeneity at both country and industry levels. We also differentiate between intra and inter-industry trade as well as between trade from western and eastern Europe and we try to assess the relative importance of foreign wages versus domestic productivity developments in an open environment. We find that trade is not an important driver of wages, since the wage response to trade is small. Moreover, in line with the Stolper-Samuelson reasoning, imports from the west generally benefit wages in central and eastern Europe, while imports from the east rather tend to harm wages in the west. The overall wage response is still negative in some sectors, particularly in more resource-based industries. Nevertheless, increased trade reinforces the productivity-wage link and weakens the co-movement of wages particularly in the west, while at the industry level there is little evidence of such a wage-disciplining effect of trade

Real convergence and the determinants of growth in EU candidate and potential candidate countries - a panel data approach

The EU candidate and potential candidate countries have made considerable progress in economic transition and integration into the world economy within less than two decades. Nevertheless, gaps in terms of income per capita relative to the euro area remain large. This suggests that the challenges of real convergence will remain relevant for the region even in the medium and long term. This paper therefore focuses on real convergence and its determinants in the candidate and potential candidate countries. The analysis reveals that total factor productivity growth has been the main driver of convergence, followed by capital deepening, whereas labour has contributed only marginally to economic growth. There is evidence of conditional convergence in the transition countries of central, eastern and south-eastern Europe. More specifi cally, controlling for the quality of institutions, the extent of market reforms and macroeconomic policies, there is a significant and negative link between the initial level of GDP and subsequent growth. Labour productivity has improved in most countries, while employment and participation rates have been falling. Structural changes have resulted in, at least temporarily, increasing labour market mismatches. Investment rates have been rising rapidly in recent years, and foreign direct investment has been found to have a positive impact on total investment. Investment in human capital is still at a relatively low level compared with the euro area average. Thus, in order to sustain the positive developments observed in the past, further improvements are needed in terms of labour productivity and utilisation, as well as in terms of physical and human capital accumulation. JEL Classification: F15, F43, O16, O43, O47, O52.Real convergence, conditional convergence, determinants of growth, total factor productivity, labour markets, capital accumulation, EU candidate and potential candidate countries.

Real convergence and the determinants of growth in EU candidate and potential candidate countries - a panel data approach

The EU candidate and potential candidate countries have made considerable progress in economic transition and integration into the world economy within less than two decades. Nevertheless, gaps in terms of income per capita relative to the euro area remain large. This suggests that the challenges of real convergence will remain relevant for the region even in the medium and long term. This paper therefore focuses on real convergence and its determinants in the candidate and potential candidate countries. The analysis reveals that total factor productivity growth has been the main driver of convergence, followed by capital deepening, whereas labour has contributed only marginally to economic growth. There is evidence of conditional convergence in the transition countries of central, eastern and south-eastern Europe. More specifi cally, controlling for the quality of institutions, the extent of market reforms and macroeconomic policies, there is a significant and negative link between the initial level of GDP and subsequent growth. Labour productivity has improved in most countries, while employment and participation rates have been falling. Structural changes have resulted in, at least temporarily, increasing labour market mismatches. Investment rates have been rising rapidly in recent years, and foreign direct investment has been found to have a positive impact on total investment. Investment in human capital is still at a relatively low level compared with the euro area average. Thus, in order to sustain the positive developments observed in the past, further improvements are needed in terms of labour productivity and utilisation, as well as in terms of physical and human capital accumulation

Financial stability challenges in candidate countries - managing the transition to deeper and more market-oriented financial systems.

This paper reviews financial stability challenges in the EU candidate countries Croatia, Turkey and the former Yugoslav Republic of Macedonia. It examines the fi nancial sectors in these three economies, which, while at very different stages of development and embedded in quite diverse economic settings, are all in a process of rapid financial deepening. This manifests itself most clearly in the rapid pace of growth in credit to the private sector. This process of financial deepening is largely a natural and welcome catching-up phenomenon, but it has also increased the credit risks borne by the banking sectors in the three economies. These credit risks are compounded by the widespread use of foreign currency-denominated or -indexed loans, leaving unhedged bank customers exposed to potential swings in exchange rates or foreign interest rates. Moreover, these financial risks form part of a broader nexus of vulnerabilities in the economies concerned, in particular the external vulnerabilities arising from increasing private sector external indebtedness. That said, the paper also fi nds that the authorities in the three countries have taken several policy actions to reduce these fi nancial and external vulnerabilities and to strengthen the resilience of the financial sectors. JEL Classification: F32, F41, G21, G28.Europe, banking sector, vulnerability indicators, capital inflows, emerging markets.

Financial stability challenges in candidate countries - managing the transition to deeper and more market-oriented financial systems

This paper reviews financial stability challenges in the EU candidate countries Croatia, Turkey and the former Yugoslav Republic of Macedonia. It examines the fi nancial sectors in these three economies, which, while at very different stages of development and embedded in quite diverse economic settings, are all in a process of rapid financial deepening. This manifests itself most clearly in the rapid pace of growth in credit to the private sector. This process of financial deepening is largely a natural and welcome catching-up phenomenon, but it has also increased the credit risks borne by the banking sectors in the three economies. These credit risks are compounded by the widespread use of foreign currency-denominated or -indexed loans, leaving unhedged bank customers exposed to potential swings in exchange rates or foreign interest rates. Moreover, these financial risks form part of a broader nexus of vulnerabilities in the economies concerned, in particular the external vulnerabilities arising from increasing private sector external indebtedness. That said, the paper also fi nds that the authorities in the three countries have taken several policy actions to reduce these fi nancial and external vulnerabilities and to strengthen the resilience of the financial sectors