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Global Integration of Central and Eastern European Financial Markets: The Role of Economic Sentiments

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  • Ansgar Belke
  • Joscha Beckmann
  • Michael Kühl

Abstract

This paper examines the importance of different economic sentiments, e.g. consumer moods, for the Central and Eastern European countries (CEECs) during the transition process. We first analyze the importance of economic confidence with respect to the CEEC's financial markets. Since the integration of formerly strongly regulated markets into global markets can also lead to an increase of the dependence of the CEECs' domestic market performance from global sentiments, we also investigate the relationship between global economic sentiments and domestic income and share prices. Finally, we test whether the impact of global sentiments and stock prices on domestic variables increases proportionally with the degree of integration. For these purposes, we apply a structural cointegrating VAR (CVAR) framework based upon a restricted autoregressive model which allows us to distinguish between the long-run and the short-run dynamics. For the long run we find evidence supporting relationships between sentiments, income and share prices in case of the Czech Republic. Our results for the short run suggest that economic sentiments in general are strongly influenced by share prices and income but also offer some predictive power with respect to the latter. What is more, global sentiments play an important role in particular for the CEECs' share prices and income. The significance of this link increases with economic integration.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.344146.de/dp952.pdf
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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 952.

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Length: 36 p.
Date of creation: 2009
Date of revision:
Handle: RePEc:diw:diwwpp:dp952

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Keywords: Cointegration; European integration; financial markets; restricted autoregressive model; sentiments;

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References

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Cited by:
  1. Joscha Beckmann & Ansgar Belke & Michael Kühl, 2012. "The cross-country importance of global sentiments—evidence for smaller EU countries," International Economics and Economic Policy, Springer, vol. 9(3), pages 245-264, September.

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