Capital Flows and Speculative Attacks in Prospective EU Member States

This paper examines the capital flow experience of transition economies who are also prospective EU members with a view to shedding light on the likely problems they might encounter with exchange rate policy in the run up to euro area membership. We show that they have been experiencing fairly sizeable capital flows since the early 1990s. We explain these flows using two separate models. The first explains the level of capital flows using panel data from the prospective EU members. The second concentrates specifically on estimating the probability of a country experiencing downward speculative pressure. In both cases, the contribution of domestic factors and contagion is explored. The results suggest that while domestic factors have some role to play, it is rather limited. Moreover there is clear evidence of contagion effects, suggesting that macroeconomic policy in the prospective EU members will be complicated by capital flows in the run up to euro area membership.capital flows, transition economies, accession countries and EU membership

The Contribution of Sectoral Productivity Differentials to Inflation in Greee

This paper estimates the magnitude of the Balassa-Samuelson effect for Greece. We calculate the effect directly, using sectoral national accounts data, which permits estimation of total factor productivity (TFP) growth in the tradeables and nontradeables sectors. Our results suggest that it is difficult to produce one estimate of the BS effect. Any particular estimate is contingent on the definition of the tradeables sector and the assumptions made about labour shares. Moreover, there is also evidence that the effect has been declining through time as Greek standards of living have caught up on those in the rest of the world and as the non-tradeables sector within Greece catches up with the tradeables.Balassa-Samuelson effect, inflation, productivity

The Balance Sheet Channel of Monetary Policy Transmission: Evidence from the UK

This paper examines the sensitivity of investment to cash flow using a panel of UK firms in manufacturing with a view to shedding some light on the existence of a balance sheet channel or financial accelerator. In addition to examining the impact of cash flow in different subsamples based on company size or financial policy (dividend payouts, share issues and debt accumulation), we also investigate the extent to which investment becomes more sensitive to cash flow in periods of monetary tightness. To this end, we employ a monetary tightness indicator constructed for the UK using the narrative approach pioneered by Romer and Romer. The results provide some support for the view that UK firms show greater investment sensitivity to cash flow during periods of tight monetary policy.Financial Constraints; Balance Sheet Channel, Investment.

Capital Flows, Capital Account Liberalisation and the Mediterranean Countries

This paper examines questions related to possible capital account liberalisation in the Mediterranean countries. First, we provide an overview of the extent to which these countries have capital controls along with their exchange rate regimes and some basic macroeconomic aggregates. Second, we examine the case for capital account liberalisation, along with the prerequisites for successful liberalisation. Here we consider issues such as sequencing and possible benefits of synchronisation. Finally, we examine the experience with capital flows – both FDI and other capital flows. We explain these flows and use the past experience of these countries to draw some conclusions for the successful opening up of the capital account.capital account liberalisation, Mediterranean countries, capital flows

The Greek financial crisis: growing imbalances and sovereign spreads

We discuss the origins of the Greek financial crisis as manifested in the growing fiscal and current-account deficits since euro-area entry in 2001. We then provide an investigation of spreads on Greek relative to German long-term government debt. Using monthly data over the period 2000 to 2010, we estimate a cointegrating relationship between spreads and their long-term fundamental determinants, and compare the spreads predicted by this estimated relationship with actual spreads. We find periods of both undershooting and overshooting of spreads compared to what is predicted by the economic fundamentals.Greek financial crisis; sovereign spreads

Takeover Risk and the Market for Corporate Control: The Experience of British Firms in the 1970s and 1980s

This paper investigates the determinants of takeovers in a large sample of UK quoted companies. We focus on the channels through which the market for corporate control monitors company performance and discretionary managerial behaviour. Our results indicate that the market for corporate control disciplines poorly performing companies, and that this effect is quantitatively important: a one standard deviation increase in profitability is associated with a fall in the conditional probability of takeover of over 20%. However, we find no evidence that firms without apparent profitable investment opportunities are more likely to be taken over if managers increase investment or reduce dividends, contrary to the predictions of the free cash-flow theory of takovers

Is Attack the Best form of Defence? A Competing Risks Analysis of Acquisition Activity in the UK

The primary purpose of this paper is to investigate whether companies can use acquisition as a strategy to reduce their probability of takeover. A subsidiary issue is whether such a strategy has any impact on their subsequent probability of bankruptcy. The determinants of making an acquisition, being taken over, and bankruptcy are modelled within a competing risks framework using two large samples of UK manufacturing companies. Our results indicate that, ceteris paribus, companies which make acquisitions can significantly reduce their conditional probability of being taken over, largely through the impact that acquisition has on corporate size. In this sense, attack, through acquisition, is the best form of defence, against takeover

The Very Low Albedo of WASP-12b From Spectral Eclipse Observations with Hubble\textit{Hubble}

We present an optical eclipse observation of the hot Jupiter WASP-12b using the Space Telescope Imaging Spectrograph on board the Hubble Space Telescope. These spectra allow us to place an upper limit of $A_g < 0.064$ (97.5% confidence level) on the planet's white light geometric albedo across 290--570 nm. Using six wavelength bins across the same wavelength range also produces stringent limits on the geometric albedo for all bins. However, our uncertainties in eclipse depth are $\sim$40% greater than the Poisson limit and may be limited by the intrinsic variability of the Sun-like host star --- the solar luminosity is known to vary at the $10^{-4}$ level on a timescale of minutes. We use our eclipse depth limits to test two previously suggested atmospheric models for this planet: Mie scattering from an aluminum-oxide haze or cloud-free Rayleigh scattering. Our stringent nondetection rules out both models and is consistent with thermal emission plus weak Rayleigh scattering from atomic hydrogen and helium. Our results are in stark contrast with those for the much cooler HD 189733b, the only other hot Jupiter with spectrally resolved reflected light observations; those data showed an increase in albedo with decreasing wavelength. The fact that the first two exoplanets with optical albedo spectra exhibit significant differences demonstrates the importance of spectrally resolved reflected light observations and highlights the great diversity among hot Jupiters.Comment: 8 pages, 4 figures, 1 table, published in ApJL, in pres

EU enlargement, ERM II and lessons from the Southern European countries

The purpose of this paper is to examine the experience of convergence with an exchange rate target in the southern European economies (SEEs). We argue that their experience has much to teach new and prospective EU members. We discuss the similarities of the SEEs and the new/prospective EU members in order to establish the relevance of the experience of the former for the latter. We then go on to offer evidence on the experience of SEEs with capital flows and speculative crises in the run-up to EMU membership. We discuss the implications of these results for the institutional structure of ERM II and conclude by discussing policy options available to the new/prospective members in the light of the previous analysis