Do Economists' and Financial Markets' Perspectiveson the New Members of the Eu Differ?

Abstract

In the past several years, the ten new Central and Eastern European members of the European Union have enjoyed rapid growth but frequently alongside growing external imbalances. Economists have pointed to rising vulnerabilities, but markets compressed sovereign bond yields. This paper examines the evidence from the perspective of economists'' vulnerability analysis and markets'' pricing of sovereign bonds. It finds that spread are lower than can be explained by "fundamentals" and speculates on the causes and permanence of this yield compression.Emerging markets;European Union;Economic growth;Bonds;Prices;bond, sovereign bond, current account, global liquidity, external debt, financial markets, bond spreads, financial market, current account balance, stock market, equity markets, current account deficits, short-term debt, currency risk, net external debt, denominated bonds, bond yields, private debt, bond index, sovereign bonds, external borrowing, stock market indices, market debt, current account deficit, stock market volatility, financial market development, domestic savings, current account surpluses, central banks, financial assets, stock index, foreign debt, domestic currency, international financial markets, flexible exchange rates, currency boards, budget balance, stock index options, international country risk guide, sovereign default, external indebtedness, bond of face value, net private debt, international financial statistics, financial stability, emerging market bond, financial system, stock markets, currency debt, bond defaults, market bond, international finance, debt service, reserve accumulation