The role of the real exchange rate in credit growth in central and eastern European countries : a bank-level analysis

This study analyzes the effects of macroeconomic and bank-level variables on the loan growth of banks in Central and Eastern European countries (CEECs) for the period between 1999 and 2010. Differences between private, state, domestic and foreign banks are analyzed by using the ownership structures of banks. We show that, unlike macro-economic factors and other bank-level variables, leverage growth and equity growth have consistently significant effects on the loans of both domestic and foreign banks. The real exchange rate turns out to be a significant factor only for foreign banks. The latter result is important in understanding the transmission of global shocks to domestic credit. The results are robust to different specifications

Estimation of STAR-GARCH models with Iteratively Weighted Least Squares

This study applies the Iteratively Weighted Least Squares (IWLS) algorithm to a Smooth Transition Autoregressive (STAR) model with conditional variance. Monte Carlo simulations are performed to measure the performance of the algorithm, to compare its performance to the established methods in the literature, and to see the effect of the initial value selection method. The simulation results show that lower bias and mean squared error values are received for the slope parameter estimator from the IWLS algorithm in comparison to the other methods when the real value of the slope parameter is low. In an empirical illustration, the STAR–GARCH model is used to forecast daily US Dollar/Australian Dollar and the FTSE Small Cap index returns. 1-day ahead out-of-sample forecast results show that the forecast performance of the STAR–GARCH model improves with the IWLS algorithm and the model performs better than the benchmark model

Daily currency interventions in an emerging market : incorporating reserve accumulation to the reaction function

Understanding the intervention policy of central banks on currency markets is important for both practitioners and researchers. Existing models for central bank interventions exclusively focus on exchange rate targeting in level or volatility. However, central banks in emerging economies use international reserves as an insurance against sudden capital outflows and use interventions to manage them. Omitting the reserve component in the reaction function may therefore lead to a bias and wrong conclusions. We therefore extend the reaction function by incorporating a reserve component and illustrate its benefit by applying it to the case of Turkey. We find that the intervention policy of the Turkish Central Bank indeed incorporated interventions to manage their reserves and is therefore better described by our extended model. Furthermore it provides a more accurate description of changes in the central bank's policy. Our results strongly suggest to incorporate reserve variables in intervention functions for emerging countries