nep-tra New Economics Papers
on Transition Economics
Issue of 2021‒02‒22
ten papers chosen by
Maksym Obrizan
Kyiv School of Economics

  1. OIL PRICE EXPOSURE OF CEE FINANCIAL COMPANIES By Alexandra Horobet; Georgiana Maria Vrinceanu; Lucian Belascu
  2. Spillover Effects of the European Central Bank's Expanded Asset Purchase Program to Non-eurozone Countries in Central and Eastern Europe By Lorant Kaszab; Mark Antal
  3. Quality of Life in Chinese Cities By Shi, Tie; Zhu, Wenzhang; Fu, Shihe
  5. Can Information Influence the Social Insurance Participation Decision of China's Rural Migrants? By Giles, John T.; Meng, Xin; Xue, Sen; Zhao, Guochang
  6. Does bank efficiency affect the bank lending channel in China? By Fungáčová, Zuzana; Kerola, Eeva; Weill, Laurent
  7. Banking Supervision and Risk-Adjusted Performance inthe Host Country Environment By Karel Janda; Oleg Kravtsov
  8. A simulation framework to project pension spending: The Czech pension system By Falilou Fall; Paul Cahu
  9. Does flood experience modify risk preferences? Evidence from an artefactual field experiment in Vietnam By Arnaud Reynaud; Cécile Aubert

  1. By: Alexandra Horobet (The Bucharest University of Economic Studies, Romania); Georgiana Maria Vrinceanu (The Bucharest University of Economic Studies, Romania); Lucian Belascu (“Lucian Blaga†University of Sibiu, Romania)
    Abstract: In recent years an alarming situation concerning the global financial markets is represented by the fact that Brent crude oil price and stock prices created the impression that they are strongly correlated. Besides, crude oil represents an indispensable and critical resource for the world economy and European Union member countries are net oil importers. In this general framework, the main purpose of this paper is to investigate the exposure to oil price risk of financial companies listed on stock exchanges from Central and Eastern European countries using monthly datasets covering the period between January 2011 and December 2018. The empirical analysis includes financial companies from seven economies from Central and Eastern Europe, all EU members and oil importers: Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia. We use Brent crude oil prices, companies’ stock returns, local stock market indices, the Dow Jones Europe Financials Index and foreign exchange rates of the domestic currencies against the US dollar, as well as an index that capture the financial sector – related stress (CLIFS) in order to shed light on the idiosyncrasies of the oil price – returns relationship. The relevance of financial companies’ exposures to oil price changes is identified using the panel data methodology in a traditional OLS structure, as well as in a dynamic ARDL panel estimation that capture the longrun versus the short-run exposure of CEE financial companies to oil price risk. Our results suggest that oil price fluctuations impact the stock prices of financial companies from CEE countries, but the link between stock return and oil price risk has some specificities and is mostly observable on the long run. The oil price changes have a negative impact on companies’ stock returns, thus proving that they should be understood as a risk factor for the financial sector. At the same time, our results indirectly highlight the ubiquitous exposure of CEE economies to market risk factors and the worrying role of economy-wide risk transmitter of the financial sector.
    Keywords: Oil price, Exposure, Central and Eastern Europe, Financial sector
    JEL: F23 G15 G32
    Date: 2019–12
  2. By: Lorant Kaszab (Magyar Nemzeti Bank (Central Bank of Hungary)); Mark Antal (European Central Bank)
    Abstract: For a panel of six Central and Eastern European countries outside the eurozone (Bulgaria, Croatia, Czechia, Hungary, Poland and Romania) we estimate the spillover effects of the European Central Bank's Expanded Asset Purchase Program (APP) on exchange rates, equity prices, government bond yields of various maturities, and CDS spreads. We find that the most pronounced spillovers induced sovereign bond yields to drop by around 1-6 basis points in a two-day time window in response to the Public Sector Purchase Program (PSPP) announcements.
    Keywords: ordinary least squares estimation, panel data, unconventional monetary policy
    JEL: E51 E32 E44 F45 F47
    Date: 2021
  3. By: Shi, Tie; Zhu, Wenzhang; Fu, Shihe
    Abstract: The Rosen-Roback spatial equilibrium theory states that cross-city variations in wages and housing prices reflect urban residents’ willingness to pay for urban amenities or quality of life. This paper is the first to quantify and rank the quality of life in Chinese cities based on the Rosen-Roback model. Using the 2005 1% Population Intercensus Survey data, we estimate the wage and housing hedonic models. The coefficients of urban amenity variables in both hedonic models are considered the implicit prices of amenities and are used as the weights to compute the quality of life for each prefecture city in China. In general, provincial capital cities and cities with nice weather, convenient transportation, and better public services have a higher quality of life. We also find that urban quality of life is positively associated with the subjective well-being of urban residents.
    Keywords: Spatial equilibrium, hedonic model, urban amenity, quality of life, life satisfaction
    JEL: H44 J31 J61 R13 R23 R31
    Date: 2021–01–12
  4. By: Yang Liu (Department of Risk Management, University of Hohenheim, Stuttgart, Germany)
    Abstract: Recent years have witnessed a dramatic increase in real estate prices in mainland China. Current research mainly takes the Chinese housing market as an independent market and focuses on potential future growth or the increasing asset bubble in this market. This research, however, studies the short- and long-run interrelationship between the housing market and two other major markets in mainland China - the stock market and the domestic consumption market - from 2005 to 2019. In addition, the codependency between Chinas economy and the real estate market is also examined. After detecting the structural breaks in the time series of property price index by using the recursive CUSUM test, the whole examining period is divided into sub-periods. In each subperiod, the variance decomposition and Granger causality tests are used to identify the timevarying short- and long-run interdependencies between these markets. Results indicate that there is time-varying relation between property prices and stock indexes, and the correlation between property prices and stock indexes becomes weaker over time. In terms of housing market and the domestic consumption market, a weak relation between these two markets is observed over the whole period. These findings are of vital importance for China domestic investors to help them understand and diversify the risk of their portfolios, which are mainly composed by property and stock assets. In addition, these results offer new insight into the impact of the housing market on the domestic consumption market within Chinese context. This further aids the Chinese government in regulating these three markets more efficiently and avoiding any unwanted domino effect between them.
    Keywords: Variance decomposition, Stock market, Property market, Domestic consumption market, China.
    JEL: C12 R21 R31
    Date: 2020–04
  5. By: Giles, John T. (World Bank); Meng, Xin (Australian National University); Xue, Sen (Jinan University); Zhao, Guochang (Southwest University of Finance and Economics, Chengdu)
    Abstract: This paper uses a randomized information intervention to shed light on whether poor understanding of social insurance, both the process of enrolling and costs and benefits, drives the relatively low rates of participation in urban health insurance and pension programs among China's rural-urban migrants. Among workers without a contract, the information intervention has a strong positive effect on participation in health insurance and, among younger age groups, in pension programs. Migrants are responsive to price: in cities where the premia are low relative to earnings, information induces health insurance participation, while declines are observed in cities with high relative premia.
    Keywords: migration, social insurance, information, randomised controlled trial
    JEL: H53 H55 J46 J61 O15 O17 O53 P35
    Date: 2021–02
  6. By: Fungáčová, Zuzana; Kerola, Eeva; Weill, Laurent
    Abstract: This work examines the impact of bank efficiency on the bank lending channel in China. Using a sample of 175 Chinese banks over the period 2006–2017, we investigate how the reaction of the loan supply to monetary policy actions depends on a bank’s efficiency. While bank efficiency does not exert an impact on the effectiveness of monetary policy transmission overall, it does favor the transmission of monetary policy for banks with low loan-to-deposit ratios. In addition, the expansion of shadow banking activities has been associated with a positive impact of bank efficiency on monetary policy transmission. These results suggest that bank efficiency may influence the bank lending channel in certain cases.
    JEL: E52 G21
    Date: 2021–02–08
  7. By: Karel Janda; Oleg Kravtsov
    Abstract: In this paper, we examine the impact of the supervision as a monitoring activity and regulatory scrutiny on the performance and riskiness of the financial institutions in countries of Central, Eastern and South-Eastern Europe, whose banking sectors are characterized by foreign-bank dominated systems. For a dataset of 450 banks from 20 economies of the region, we use statistics from the World Bank-Bank Regulation and Supervisory Survey to construct the measures of the supervision activities, capital regulation stringency and supervisory power. We find that a higher intensity of supervision monitoring activities, especially by the centralized form of supervision, contributes to the decline of the bank's riskiness in case of larger banks while not affecting their economic performance. The regulatory power and stringency indicate a positive effect on the risk-adjusted performance for capital constrained banks, but moderately decrease the economic benefit for larger banks. The findings highlight the potential area of attention for regulators and policymakers and thus, contribute to the designing of effective supervision mechanism in the region.
    Keywords: supervision, financial regulation, RAROC, causal mediation analysis, moderation analysis, Central Eastern and South-Eastern Europe
    JEL: G20 G21 G28
    Date: 2020–11–19
  8. By: Falilou Fall; Paul Cahu
    Abstract: This paper presents a simulation framework developed to assess the impact of ageing on the financial sustainability of the Czech pension system. It accompanies the publication OECD Reviews of Pension Systems: Czech Republic. The framework has two components: a macroeconomic model to project long-term GDP and a cohort model to simulate the evolution of pensions. The macroeconomic model takes into account the evolution of the labour force and productivity. The cohort model simulates the career of a representative sample of the working-age population and their path in retirement. It replicates and projects the main features of the labour market, in particular, participation, wage and unemployment. It captures non-linear features of the pension system and distributional effects. The model estimates and simulates the main demographic variables of the pension system, in particular, the number of old-age pensioners and disability pensioners. It allows to simulate different policy options to close the financing gap of the pension system. Pension spending is projected to increase to 11.9% of GDP in 2060 from 8.2% in 2018, leading to increasing deficits of the pension system. Among the different options to close the financing gap, further increasing the retirement age after 2030 in line with life expectancy gains appears to be the most efficient policy measure to boost growth and reduce the financing needs. However, additional measures would be needed to close the financing gap of the pension system.
    Keywords: Ageing, Czech Republic, financial sustainability of pension systems, Pay-as-you-go-system, pension reform, pension simulation frramework, pensions
    JEL: H55 J11 J26 J18
    Date: 2021–02–16
  9. By: Arnaud Reynaud (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Cécile Aubert (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We conducted an artefactual field experiment in Vietnam to investigate whether and how experiencing a natural disaster affects individual attitudes toward risks. Using experimental and real household data, we show that households in villages affected by a flood in recent years exhibit more risk aversion, compared with individuals living in similar but unaffected villages. Interestingly, this result holds for the loss domain, but not the gain domain. In line with Prospect Theory, Vietnamese households distort probabilities. The distortion is related to aid received and social networks participation, but is unrelated to flood experience.
    Keywords: Field experiment,Vietnam,Flood,Non-expected utility,Risk preferences
    Date: 2020
  10. By: Mahammad Allazov (Azerbaijan State Economics University, Faculty of Finance and Financial Institutions, Baku, Azerbaijan)
    Abstract: The paper assesses the impact of financial instruments in Azerbaijan on the stock market and joint stock companies and determines the effect of the stock market capitalization level on budget revenues and expenditures and the optimal threshold. A significant part of financial resources for investment purposes arises in the securities market, especially in the corporate securities sector. The main factor in improving the efficiency of the securities market should be increasing the volume of trading operations and creation of favorable conditions for this, increasing the variety and use of capital instruments, the issuance of new financial instruments. Based on the correlation between budget expenditures and budget revenues and the level of capitalization of the stock market with the application of economic-mathematical methods, the optimal level of capitalization of the stock market was determined. Based on the elasticity coefficient, it was determined that budget revenues and budget expenditures will change by 0.17% due to a 1% change in the capitalization level of the stock market in Azerbaijan. As a result of economic-mathematical methods, it was determined that a 1% increase in the capitalization level of the stock market in Azerbaijan results in a 0.17% increase in GDP.
    Keywords: : Financial markets, stock markets, financial instruments, stock market efficiency
    JEL: D53 E44 G15
    Date: 2020–09

This nep-tra issue is ©2021 by Maksym Obrizan. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.