International Capital Mobility and Current Account Targeting in Central and Eastern European Countries

Abstract

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0551.pdf Non-Technical SummaryIn May 2004, the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia (hereafter CEEC-5) joined the European Union (EU). Precondition for the accession was that the countries had met the political and economic criteria and adopted all policies and rules of the EU and to ensure their effective enforcement through appropriate administrative structures. Among these rules some require to remove all barriers that restrict the transfer of capital and services, since only the free flow of capital and services within the community makes it possible to take full advantage of the single market. Furthermore, the harmonization of financial market regulations has positive effects on monetary policy in an enlarged European Monetary Union (EMU), since different financial structures and levels of financial integration impede an efficient monetary policy by the European Central Bank (ECB). This not only endangers price level stability but also economic growth, since monetary impulses might have asymmetric effects on the economy in central and eastern European countries due to different structures and degrees of financial market integration.To measure this degree of integration the Feldstein-Horioka approach is used that analyzes the degree of financial integration in the CEEC-5 according to the correlation between saving and investment rates. To compare the degree of integration with that of the EMU eleven member countries are included into the regression. Since the results of the Feldstein-Horioka approach are sensitive to current account targeting policies of the government, we included the fiscal budget as additional variable into the regression to control for these kind of policies. We finally analyse the development of the current account of the CEEC-5 in greater detail to find out if the governments in these countries targeted the current account during the period in transformation.According to our analysis the degree of international capital mobility in the CEEC-5 has reached and even exceeded the degree of capital mobility in the euro zone. This development might be explained with the liberalization of capital flows towards the European and the world capital market during the transition period, while the EMU countries seem to have more concentrated on the removal of barriers within the euro area than toward the world capital market. These results are robust to current account targeting policies. Th...

Savings–Investment Correlation and Capital Outflow: The Case of Pakistan

“…Some studies suggest a brawny association between savings and investment [Feldstein and Horioka (1983); Penati and Dooley (1984); Feldstein (1983); Obstfeld (1986); Dooley et al (1987); Haque and Montiel (1991); Tesar (1991); Feldstein and Bacchetta (1991); Sinha and Sinha (1998);Narayan (2005a, b); Ang (2007) and, Jiranyakul and Brahmasrene (2008)]. Later on, time series analysis has revealed mixed results [Miller (1988); Alexakis and Apergis (1994); Ho (1999Ho ( , 2000; Schneider (1999); Boon (2000); De Vita and Abbott (2002); Ho (2003); Payne and Kumazawa (2005); Erden (2005); Kohler (2005); Bebczuk and Schmidt-Hebbel (2006); Grier et al (2007); Mastroyiannis (2007); Murthy (2007Murthy ( ) and Ö zmen (2004Murthy ( , 2007]. …”

Two Deficits and Economic Growth: Case of CEE Countries in Transition

“…If the government is targeting the current account, it should generate fiscal surpluses in the case when domestic investment exceeds domestic saving, and deficits in the opposite case. Current account targeting also implies a negative link in the private and public saving/investment gaps [26].…”

“…Kohler [26] tried to explain the contradictory results in the case of CEE countries by underlining different levels of integration of these countries with the world financial markets. The author argued that countries with a high level of integration with the world markets may gain more confidence and enjoy a higher level of domestic saving.…”

Two Deficits and Economic Growth: Case of CEE Countries in Transition

“…If the government is targeting the current account, it should generate fiscal surpluses in case when domestic investment exceeds domestic saving, and deficits in the opposite case. Current account targeting also implies a negative link in the private and public saving/investment gaps ( [26]). …”