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on Transition Economics |
| By: | Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank); Kamila Koprnická (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank) |
| Abstract: | In this paper, we examine the determinants of inflation differentials in a panel of the new European Union member states vis-à-vis the euro area in 1997-2007. Our main results are as follows. Exchange rate appreciation and higher price level in the new EU members is associated with narrower inflation differential vis-à-vis the euro area, while fiscal deficit and positive output gap seem to contribute to higher inflation differential. Nevertheless, the effect of price convergence on inflation differentials is found to be dominating in these countries suggesting that a country with price level 20% below the euro area average is likely to exhibit inflation nearly one percentage point above the euro area. Overall, our results indicate that real convergence factors rather than cyclical variation are more important for inflation developments in the new EU members, as compared to the euro area. |
| Keywords: | inflation differentials, price convergence, exchange rate, New EU members, panel data |
| JEL: | E31 F41 |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2008_24&r=tra |
| By: | Emre Ozsoz (Fordham University, Department of Economics); Erick W. Rengifo (Fordham University, Department of Economics); Dominick Salvatore (Fordham University, Department of Economics) |
| Abstract: | In dollarized financial systems, there exists a currency mismatch risk that could lead to financial crises. Central Banks in such economies have to adjust their foreign currency policies accordingly. This paper estimates the probability of Central Bankers' intervention in the foreign currency markets in dollarized economies as explained by the volatility measures of the local exchange rate. By employing data from five countries, we show that in controlled inflation environments, not only Central Banks' interventions but also the direction of the interventions can be predicted to a good degree while under high inflation our model fails to provide healthy results. |
| Keywords: | Central Bank Intervention, Foreign Exchange Rates, Dollarization, Ordered Probit |
| JEL: | F31 E58 G15 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:frd:wpaper:dp2008-16&r=tra |
| By: | Giles, John; Park, Albert; Wang, Meiyan |
| Abstract: | In determining whether a country's higher education system should be expanded, it is important for policymakers first to determine the extent to which high private returns to post-secondary education are an indication of the scarcity of graduates instead of the high unobserved ability of students who choose to attend post-secondary education. To this end, the paper identifies the returns to schooling in urban China using individual-level variation in educational attainment caused by exogenous city-wide disruptions to education during the Cultural Revolution from 1966 to 1976. For city-cohorts who experienced greater disruptions, children's educational attainment became less correlated with that of their fathers and more influenced by whether their fathers held administrative positions. The analysis calculates returns to college education using data from the China Urban Labor Survey conducted in five large cities in 2001. The results are consistent with the selection of high-ability students into higher education. The analysis also demonstrates that these results are unlikely to be driven by sample selection bias associated with migration, or by alternative pathways through which the Cultural Revolution could have affected adult productivity. |
| Keywords: | Education For All,Tertiary Education,Secondary Education,Primary Education,Population Policies |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4729&r=tra |
| By: | Fabricio Coricelli (University of Siena; University of Paris I; CEPR); Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank) |
| Abstract: | Most empirical studies on price setting that use micro data focus on advanced industrial countries. In this paper we analyze the experience of an emerging economy, Slovakia, using a large micro-level dataset that accounts for a substantial part of the consumer price index (about 5 million observations). We find that market structure is an important determinant of pricing behavior. The effect of market structure on persistence of inflation results from two conflicting forces. Increased competition may reduce persistence by increasing the frequency of price changes. In contrast, higher competition may increase persistence through inertial behaviour induced by the strategic complementarity among price setters. In our case study, we find that the latter effects dominate. Indeed, the dispersion of prices is higher while persistence is lower in the non-tradable sectors, suggesting that higher competition is not conducive to lower persistence. Furthermore, we find that the frequency of price changes depends negatively on the price dispersion and positively on the product-specific inflation. These results seem consistent with predictions of Calvo’s staggered price model. |
| Keywords: | price setting, market structure, emerging markets |
| JEL: | D40 E31 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2008_23&r=tra |
| By: | David Hauner |
| Abstract: | Putting the pension system on a sustainable footing arguably remains the biggest challenge in Russia's economic policies. The debate about the policy options was hitherto constrained by the absence of general equilibrium analysis. This paper fills this gap by simulating their macroeconomic effects in a DSGE model calibrated to Russia's economy-the first of its kind to the best of our knowledge. The results suggest that a minimum benefit level in the public system should optimally be financed through lower government consumption, while higher taxation of labor and capital should be avoided. Reducing public investment spending is superior to increasing consumption taxes unless investment generates high rates of return. |
| Keywords: | Russian Federation , Pensions , Economic reforms , Private savings , Tax policy , Public investment , Consumption taxes , Aging , Population , Value added tax , Working Paper , |
| Date: | 2008–08–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/201&r=tra |
| By: | Roman Horváth (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; Czech National Bank); Marek Rusnák (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic) |
| Abstract: | In this paper, we provide evidence on the nature and the relative importance of domestic and foreign shocks in Slovak economy based on block-restriction vector autoregression model in 1999-2007. We document well-functioning monetary transmission mechanism in Slovakia. Subject to various sensitivity checks, we find that contractionary monetary policy shock has a temporary negative effect on the degree of economic activity and price level. We find that using output gap instead of GDP alleviates the price puzzle. In general, prices are driven mainly by foreign factors and the European Central Bank monetary policy shock on Slovak prices is more powerful than that of the National Bank of Slovakia. Slovak central bank interest rate policy seems to follow the ECB’s interest rates. On the other hand, spectacular Slovak economic growth is primarily driven by domestic factors suggesting the positive role of recently undertaken Slovak economic reforms. |
| Keywords: | small open economy, foreign shocks, monetary policy, Slovakia, euro area |
| JEL: | E58 F41 F42 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2008_21&r=tra |
| By: | Dracea, Raluca; Cristea, Mirela; Ionascu, Costel; Irtes, Meltem |
| Abstract: | The academic literature analyzes the fiscality concern from all points of view, and the question which pressed upon the theoreticians and also the practitioners of the last decades remains: which is the adequate level of the fiscality? The difficulty in answering the question consists in opposite interests: on one hand, the government is willing to acquire the highest level due to the ascendant tendency of public expenses; on the other hand, the tax payers long for a much reduced level in order to dispose of more financial funds. Considering the theory of Arthur Laffer as well as the premise that the taxation structure (flat or progressive tax) is less important than the general level of taxation (tax burden), the purpose of this paper consists in the empirical analysis of the correlation between the tax pressure rate, GDP and the tax incomes flux within two States which adopt different tax systems: Romania and Turkey. For this purpose, we have described the methodology of creating the Laffer curve for Romania and Turkey and we have applied the methods concerning the analysis between the GDP and real tax systems, as well as those methods which estimate the empirical tendency of the fiscality rate within the two States, mentioned above, taking into account the parameters which determine it. The conclusion indicates the existence of a correlation between the real GDP and the real tax incomes, strongly manifested in Turkey (progressive tax system) as compared to Romania (flat tax system). Romania provides an optimistic position, based on standard tendencies which confirm the theory of Arthur Laffer within other countries in Eastern Europe. |
| Keywords: | Laffer curve fiscality rate tax incomes static statistical analysis correlations |
| JEL: | E62 H21 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10469&r=tra |
| By: | Olga Arratibel (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Reiner Martin (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.); Davide Furceri (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.) |
| Abstract: | This paper analyzes the relation between exchange rate volatility and several macroeconomic variables, namely real per capita output growth, the credit cycle, the stock of inward foreign direct investment (FDI) and the current account balance, in the Central and Eastern European EU Member States. Using panel estimations for the period between 1995 and 2006, we find that lower exchange rate volatility is associated with higher growth (for relatively less financially developed economies), higher stocks of FDI (for relatively more open economies), higher current account deficits, and a more volatile development of the credit to GDP ratio. JEL Classification: F3, F4, F5. |
| Keywords: | EU, Exchange Rate Volatility, Growth, FDI, Credit, Current Account, Catching-up, Convergence. |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20080929&r=tra |
| By: | Melecky, Ales; Melecky, Martin |
| Abstract: | This paper attempts to estimate possible losses in macroeconomic stabilization due to a move from inflation to exchange rate targeting on an example of the Czech Republic. The authors use an estimated New Keynesian policy model, general inflation and exchange rate targeting rules, and representative central bank loss functions to carry out such estimations. The authors find that for the Czech Republic moving from the historically applied inflation targeting to optimized exchange rate targeting should not involve any significant losses in macroeconomic stabilization. However, the Czech National Bank could improve its stabilization outcomes while remaining an inflation targeter. This requires the Czech National Bank to respond stronger to increasing expected future inflation and be less concerned about an opening output gap when adjusting its policy rate. Moving then from such optimized inflation targeting to optimized exchange rate targeting can result in significant losses in economic stabilization in the magnitude of 0.4 to 2 percentage points of GDP growth. |
| JEL: | E32 E58 E52 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:10844&r=tra |
| By: | Abe, Kazutomo; Wilson, John S. |
| Abstract: | This paper examines the impact of reducing corruption and improving transparency to lower trade costs in the Asia Pacific Economic Cooperation region. The authors find, based on a computable general equilibrium model, significant potential trade and welfare gains for Asia Pacific Economic Cooperation members, with increased transparency and lower levels of corruption. Results suggest that trade in the region would increase by 11 percent and global welfare would expand by $406 billion by raising transparency to the average in the region. Most of the increase in welfare would take place in member economies undertaking reform. Among the reformers, the gross domestic product of Vietnam, Thailand, Russia, and the Philippines would increase approximately 20 percent. The benefits to Malaysia and China would also be substantial with increased transparency and lower levels of corruption. |
| Keywords: | Economic Theory&Research,Free Trade,Trade Policy,Emerging Markets,Currencies and Exchange Rates |
| Date: | 2008–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:wbk:wbrwps:4731&r=tra |
| By: | Branislav Saxa |
| Abstract: | This paper employs firm-level panel data from the Czech Republic to investigate the empirical relevance of the learning-by-exporting hypothesis. To provide convincing estimates, one must be able to disentangle learning-by-exporting from changes in company management that induce the company to both start exporting and introduce productivity increasing measures. Therefore, I compare estimates based on matching on propensity score, which do not control for potential management changes, to estimates based on an instrumental variables strategy. Specifically, I focus on firms that start exporting due to changes in the industry-specific exchange rate and industry-specific ratio of producer prices on domestic and foreign markets. The results suggest that learning-by-exporting in the Czech Republic is not significant, either statistically or economically, irrespective of the method used. |
| Keywords: | Exporting, productivity, matching on propensity score, local average treatment effect. |
| JEL: | D24 D83 F13 C23 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp358&r=tra |
| By: | Jan Hanousek; Filip Palda |
| Abstract: | Using surveys of the Czech Republic taken in 2000, 2002, 2004, and 2006 we measure how the percentage of tax evaders evolved from 1995 until 2006. We find that at first evasion rose, leveled off, and then fell along a quadratic path, suggesting the existence of what we call an evasional Kuznets curve. Our paper is the first to document the existence of an evasional Kuznets curve and to show how it can help improve Markov-chain predictions of tax evasion. We conclude by suggesting that the evasional Kuznets curve may be a subset of a larger trend in evasion for both transitional and developed economies. |
| Keywords: | Underground economy, tax evasion, Markov chains, transition, evasional Kuznets curve. |
| JEL: | H26 H43 K42 O17 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp360&r=tra |
| By: | Ondřej Schneider (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic; CESifo, Munich, Germany; Georgetown University) |
| Abstract: | Ten Central European countries became members of the European Union in the years 2004 - 2007. They constitute 20% of the EU’s total population; and even though their economic output is much lower, it rises dynamically. New members’ impact on the EU policies has nevertheless been limited. This is due not only to the arcane voting rules within the EU, but also to the lack of a common agenda among the Central European countries. Our paper illustrates that the new members rarely vote together and that their influence is thus fairly limited. We argue that as the EU seemingly lacks energy to implement further reforms that would stimulate its economy, impetus for change may come from Central European countries. To that end, however, they have to coordinate their voting and become a more coherent voting group than they are now. |
| Keywords: | European Union, voting system, European Council, new member states |
| JEL: | J08 J51 K31 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:fau:wpaper:wp2008_22&r=tra |
| By: | Roumen Avramov (Centre for Liberal Strategies, Sofia); Dragana Gnjatovic (Megatrend University, Belgrade) |
| Abstract: | We adopt a comparative view of the stabilization policies designed and implemented in Bulgaria and Yugoslavia during the fatal economic crises of their regimes in late 1980s. The role of the IMF can be better highlighted by comparing “with (Yugoslavia)-without (Bulgaria)” scenarios in a communist context. The authorities' views are discussed and newly accessible archival evidence is presented in the case of Bulgaria. The ruling elites’ vision is confronted by that of critical professionals thus permitting a retrospective assessment of the conceptual readiness of the society for the forthcoming transition to a market economy in the early 1990s. |
| Keywords: | macroeconomic stabilization; inflation; communist economy; Bulgaria; Yugoslavia. |
| JEL: | E63 N10 P24 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:81&r=tra |
| By: | Peresetsky , Anatoly (BOFIT) |
| Abstract: | The paper presents a study of Russian banks' interest rates on household deposits during the formation period of the deposit insurance system. It is shown that market discipline weakened after deposit insurance was effectively in place. |
| Keywords: | deposit insurance; market discipline; deposit interest rates |
| JEL: | G21 G28 P37 |
| Date: | 2008–10–02 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2008_014&r=tra |
| By: | Mali Chivakul; Ke Chen Chen |
| Abstract: | Although Bosnia and Herzegovina (BiH) has experienced rapid growth in credit to households in recent years, most individuals are still credit constrained. This paper analyzes the determinants of household credit demand and credit constraints in BiH. To our knowledge, it is the first study on this topic employing household survey data (2001 and 2004) from Emerging Europe. Our results highlight the impact of the post-conflict and transitional nature of the country on the behavior of borrowers and lenders. As expected, age, income, wealth and education qualifications are the main factors driving credit market participation, while high income and high wealth lower credit constraints. In BiH, the probability of credit market participation peaks at 45 years old, considerably higher than in the advanced countries. At the same time, older individuals are significantly more constrained than their peers in the advanced countries. The results imply that the current credit boom may largely reflect the overall post-war demand, and indicate the worse-off position of the older generation in transition economy. Moreover, the results underscore the structural nature of unemployment as well as the mismatch between education qualifications and earning prospects in BiH. Education variables have no significant effect on the likelihood of being constrained, while, unlike in the advanced countries, being unemployed significantly increases the likelihood. |
| Keywords: | Bosnia and Herzegovina , Credit expansion , Credit restraint , Public debt , Education , Unemployment , Economic conditions , Interest rates , Inflation , Credit policy , Economic models , Working Paper , |
| Date: | 2008–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/202&r=tra |
| By: | Burcu Aydin |
| Abstract: | Recent developments have increased questions about vulnerabilities in Central and Eastern European Countries (CEE) that are experiencing credit booms. This paper analyzes the role of foreign-owned banks in these credit booms. The results show that the CEE countries depend on foreign banks, and these foreign banks depend on interbank funding. Lending by foreign banks seems driven by economic growth and interest rate margins. This lending appears independent of economic but not financial conditions in the foreign bank's home country. |
| Date: | 2008–09–15 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/215&r=tra |
| By: | Marcin Piatkowski; Mariusz Jarmuzek |
| Abstract: | Global economic integration intensified tax competition and raised concerns about the resulting "race to the bottom", which could undermine public investment and social spending. The aim of this paper is to test predictions that (i) there is interdependence in CIT rate setting in Eastern Europe and that (ii) the recent CIT cut in Moldova may intensify tax competition in the region. It finds that there is indeed evidence that during 1995-2006 countries in Eastern Europe strategically responded to changes in CIT rates in the region and that Moldovan zero CIT is likely to encourage further cuts in CIT. The paper also discusses implications of tax competition for Eastern Europe and finds that FDI flows will not be much affected, tax revenues are likely to decline, the shift in the composition in tax revenue may increase economic efficiency, but decrease equity. Tax coordination, while difficult politically, could help stem further decline in corporate taxation, but any gains might be modest and not certain to exceed the costs of tax coordination. Without tax coordination, however, it is unclear what exactly could stop corporate taxes from falling further. |
| Keywords: | Moldova , Corporate taxes , Tax policy , Competition , Economic integration , Public investment , Tax revenues , Foreign direct investment , Social policy , Working Paper , |
| Date: | 2008–08–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:08/203&r=tra |
| By: | Nina Cankar; Simon Deakin; Marko Simoneti |
| Abstract: | The Slovenian Corporate Governance Code for Public Joint-Stock Companies was adopted in March 2004. Using a systems-theoretical approach, we examine the extent to which the implementation of the Code has resulted in the kinds of 'reflexive' learning processes which the 'comply or explain' approach aims to bring about. The adoption of the Code has already had an impact on the wider legal system, triggering certain changes in the body of core company law, and assisting the process of adjustment to EU-level norms. On the whole, companies' implementation strategies are strikingly similar both in terms of the contents of deviations as well as in the type of disclosure and explanations for deviations. At the same time, the quality of disclosures is low, with effective comply-or-explain declarations representing only a small minority of disclosures. On this basis, the Code has been more effective, to date, in legitimating Slovenia's adjustment to transnational norms and standards, than in stimulating institutional learning. |
| Keywords: | corporate governance, comply or explain, disclosure, reflexive law, EU law, transplants, Slovenia |
| JEL: | G34 G38 K22 |
| Date: | 2008–09 |
| URL: | http://d.repec.org/n?u=RePEc:cbr:cbrwps:wp371&r=tra |
| By: | David Büttner (Faculty of Business Administration and Economics, Philipps Universitaet Marburg); Bernd Hayo (Faculty of Business Administration and Economics, Philipps Universitaet Marburg) |
| Abstract: | We analyse the impact of news on five financial markets in the Czech Republic, Hungary and Poland using a newly-constructed data set in a GARCH framework. Macroeconomic shocks (on GDP, inflation rate, current account and trade balance) are constructed as deviations from expected values. EMU-related political and fiscal news is captured as news dummies. Macroeconomic shocks significantly affect short-term interest rates and - to a lesser extent - other financial variables. Political and fiscal news has an impact on long-term bond yields and exchange rates. News displayed prominently in our media sources has a larger impact on financial markets than other news, in addition the sources of news themselves matter. We also discover asymmetric effects of news within markets. Finally, using a pooled GARCH model we find that macroeconomic shocks have the strongest impact on financial markets in Hungary, while political news has the largest influence in Poland. |
| Keywords: | Financial markets, Czech Republic, Hungary, Poland, political news, macroeconomic shocks, European Monetary Union |
| JEL: | G12 G15 F30 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:mar:magkse:200815&r=tra |