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The impact of institutional volatility on financial volatility in transition economies

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  • Hartwell, Christopher A.

Abstract

What have been the determinants of financial volatility in the transition countries of Central and Eastern Europe and the former Soviet Union? This paper posits that institutional changes, and in particular the volatility of crucial institutions such as property rights, have been the major causes of financial volatility in transition. Building a unique monthly database of 20 transition economies from 1991 to 2017, this paper applies the GARCH family of models to examine financial volatility as a function of institutional volatility. The results show that more advanced institutions help to dampen financial sector volatility, while institutional volatility feeds through directly to financial sector volatility in transition. Democratic changes in particular engender much higher levels of volatility, while property rights are sensitive to the metric used for their measurement.

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  • Hartwell, Christopher A., 2018. "The impact of institutional volatility on financial volatility in transition economies," Journal of Comparative Economics, Elsevier, vol. 46(2), pages 598-615.
    • Handle: RePEc:eee:jcecon:v:46:y:2018:i:2:p:598-615
    DOI: 10.1016/j.jce.2017.11.002
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    More about this item

    Keywords

    Institutions; Financial sector; Volatility; Property rights; Transition; GARCH;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P30 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - General

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