The Financial System in the Czech Republic, Hungary and Poland after a Decade of Transition

The Czech Republic, Hungary and Poland (CEEC-3) have undertaken substantial efforts to build a new financial system under the constraints of their legacies from central planning. In this study, first we look at the banking sector. Then we give a description of bond and stock markets. These topics are complemented by an analysis of the structure of funding for the private and public sector, of the financial sector's vulnerability and of the legal conditions for external finance as well as for banking supervision. We find that the financial sector and financial intermediation are internationally integrated already to a large extent. This implies, inter alia, a non-negligible exposure of the corporate sector to exchange rate risk. While funding via equity markets remained modest, local currencydenominated debt issues are important for public financing. Our analysis shows that the legal, supervisory and regulatory infrastructure of the financial system is formally well developed, but suffers from enforcement problems. -- Polen, die Tschechische Republik und Ungarn unternahmen, ausgehend vom Erbe der zentralen Planwirtschaft, substanzielle Anstrengungen zur Errichtung neuer Finanzsysteme. Aufbauend auf einer Untersuchung des Bankensektors sowie der Kapitalmärkte erfolgt eine Analyse der Finanzierungsstruktur des privaten und des öffentlichen Sektors, der Krisenanfälligkeit des Finanzsektors sowie der rechtlichen Regelungen für externe Unternehmensfinanzierung und Bankenaufsicht. Finanzsektoren und -intermediation sind bereits in hohem Maße international integriert. Dies impliziert u.a., dass der Unternehmenssektor einem beachtlichen Wechselkursrisiko ausgesetzt ist. Während die Finanzierung über den Aktienmarkt gering ist, sind in nationaler Währung denominierte Schuldtitel für die Finanzierung des öffentlichen Sektors wichtig. Unsere Analyse zeigt, dass der rechtliche und aufsichtsrechtliche Rahmen der Finanzsysteme formal gut entwickelt ist. Es gibt jedoch Mängel bei der praktischen Umsetzung dieser Standards.Financial System in Czech Republic,Hungary and Poland,Financial Sector Transition,Transition Economics

Financial System Transition in Central Europe: The First Decade

The Czech Republic, Hungary and Poland (CEEC-3) have undertaken substantial efforts to build a new financial system under the constraints of their legacies from central planning. In this study, first we look at the banking sector. Then we give a description of bond and stock markets. These topics are complemented by an analysis of the structure of funding for the private and public sector, of the financial sector’s vulnerability and of the legal conditions for external finance as well as for banking supervision. We find that the financial sector and financial intermediation are internationally integrated already to a large extent. This implies, inter alia, a non-negligible exposure of the corporate sector to exchange rate risk. While funding via equity markets remained modest, local currency-denominated debt issues are important for public financing. Our analysis shows that the legal, supervisory and regulatory infrastructure of the financial system is formally well developed, but suffers from enforcement problems.

European and Non-European Emerging Market Currencies: Forward Premium Puzzle and Fundamentals

The empirical literature has consistently rejected that the uncovered interest parity (UIP) theorem holds in practice, thus posing the well-known forward premium puzzle. In this study, we examine this issue for a sample of 18 emerging market currencies and, in addition, for a subsample of 6 currencies from emerging Europe. We first confirm earlier evidence for the existence of a forward premium puzzle for emerging market economies. We then extend the model with a view to exploring systematic relationships between excess returns from investments in foreign currency and country-specific economic fundamentals. Subsequently, we use this extended model to generate out-of-sample forecasts of currency returns. We also test for forecast accuracy, confirming that these forecasts are superior to naïve forecasts. Our results show that investments based on these forecasts generate considerably higher returns than alternative investment strategies. This applies in particular to our full sample of 18 emerging market currencies. For the subsample of 6 currencies from emerging Europe, profits per trade for the model-based forecasts also outperform those generated by the other investment strategies, but by a smaller margin. These results suggest that, compared with currencies of advanced countries, the smaller bias in the forward exchange rates of emerging market currencies found in the empirical literature could relate to the better predictability of currency returns for emerging market currencies.Forward bias, emerging market currencies, forecasting

Price Dynamics in Central and Eastern European EU Accession

In this paper we review the developments of prices in the Central and Eastern European EU accession countries between 1990 and 2001. The paper starts with an analysis of the short-term and long-term (dis)inflation dynamics. This is complemented by an appraisal of price level convergence. The major driving forces of price formation in the accession countries are found to be related to price liberalization during the transition to a market economy, to the prospective EU accession, and to the catching-up process (Balassa-Samuelson effect). Finally, the paper draws conclusions about future monetary and exchange rate policy options in the run-up to EU accession and beyond.Price liberalization, core inflation, Balassa-Samuelson effect, EU enlargement.

East-West Conference

[East-West Conference of the Oesterreichische Nationalbank (OeNB) took place from the 3rd to the 5th of November 2002 in Vienna and covered the topic Structural Challenges and the Search for an Adequate Policy Mix in the EU and in Central and Eastern Europe.