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Do Economists' and Financial Markets' Perspectiveson the New Members of the Eu Differ?

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Author Info

  • Susan Schadler
  • Pipat Luengnaruemitchai

Abstract

In the past several years, the ten new Central and Eastern European members of the European Union have enjoyed rapid growth but frequently alongside growing external imbalances. Economists have pointed to rising vulnerabilities, but markets compressed sovereign bond yields. This paper examines the evidence from the perspective of economists'' vulnerability analysis and markets'' pricing of sovereign bonds. It finds that spread are lower than can be explained by "fundamentals" and speculates on the causes and permanence of this yield compression.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/65.

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Length: 31
Date of creation: 01 Mar 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/65

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Keywords: Emerging markets; European Union; Economic growth; Bonds; Prices; bond; sovereign bond; current account; global liquidity; external debt; financial markets; bond spreads; financial market; current account balance; stock market; equity markets; current account deficits; short-term debt; currency risk; net external debt; denominated bonds; bond yields; private debt; bond index; sovereign bonds; external borrowing; stock market indices; market debt; current account deficit; stock market volatility; financial market development; domestic savings; current account surpluses; central banks; financial assets; stock index; foreign debt; domestic currency; international financial markets; flexible exchange rates; currency boards; budget balance; stock index options; international country risk guide; sovereign default; external indebtedness; bond of face value; net private debt; international financial statistics; financial stability; emerging market bond; financial system; stock markets; currency debt; bond defaults; market bond; international finance; debt service; reserve accumulation;

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References

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  1. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 67(5), pages 1057-1112, September.
  2. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 20(03), pages 597-625, June.
  3. Eduardo Levy Yeyati & Martín González Rozada, 2005. "Global Factors and Emerging Market Spreads," Business School Working Papers, Universidad Torcuato Di Tella globalfactorsspreads, Universidad Torcuato Di Tella.
  4. Gianluigi Ferrucci, 2003. "Empirical determinants of emerging market economies' sovereign bond spreads," Bank of England working papers, Bank of England 205, Bank of England.
  5. Barry Eichengreen & Ashoka Mody, 2000. "What Explains Changing Spreads on Emerging Market Debt?," NBER Chapters, National Bureau of Economic Research, Inc, in: Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, pages 107-134 National Bureau of Economic Research, Inc.
  6. Manmohan S. Kumar & Jirí Jonáš & David Hauner, 2007. "Policy Credibility and Sovereign Credit," IMF Working Papers 07/1, International Monetary Fund.
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Citations

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Cited by:
  1. Regling, Klaus & Deroose, Servaas & Felke, Reinhard & Kutos, Paul, 2010. "The Euro After Its First Decade: Weathering the Financial Storm and Enlarging the Euro Area," ADBI Working Papers, Asian Development Bank Institute 205, Asian Development Bank Institute.
  2. Hoffmann, Andreas, 2013. "The euro as a proxy for the classical gold standard? Government debt financing and political commitment in historical perspective," Working Papers 119, University of Leipzig, Faculty of Economics and Management Science.
  3. Dabrowski, Marek, 2010. "The global financial crisis: Lessons for European integration," Economic Systems, Elsevier, Elsevier, vol. 34(1), pages 38-54, March.
  4. Sabine Herrmann & Adalbert Winkler, 2009. "Real convergence, financial markets, and the current account - Emerging Europe versus emerging Asia," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 362, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  5. Marcin, Piatkowski, 2009. "The Coming Golden Age of New Europe," MPRA Paper 19523, University Library of Munich, Germany.
  6. Martin Èihák & Srobona Mitra, 2009. "The Financial Crisis and European Emerging Economies," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 59(6), pages 541-553, December.
  7. Herrmann, Sabine & Winkler, Adalbert, 2008. "Financial markets and the current account: emerging Europe versus emerging Asia," Discussion Paper Series 1: Economic Studies 2008,05, Deutsche Bundesbank, Research Centre.
  8. D B�ttner & B. Hayo, 2012. "EMU-related news and financial markets in the Czech Republic, Hungary and Poland," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 44(31), pages 4037-4053, November.
  9. Klaus Regling & Servaas Deroose & Reinhard Felke & Paul Kutos, 2010. "The Euro After Its First Decade : Weathering the Financial Storm and Enlarging the Euro Area," Governance Working Papers 22817, East Asian Bureau of Economic Research.
  10. International Monetary Fund, 2007. "Vulnerabilities in Emerging Southeastern Europe," IMF Working Papers 07/236, International Monetary Fund.
  11. Daniel Leigh & Stefania Fabrizio & Ashoka Mody, 2009. "The Second Transition," IMF Working Papers 09/43, International Monetary Fund.
  12. Comelli, Fabio, 2012. "Emerging market sovereign bond spreads: Estimation and back-testing," Emerging Markets Review, Elsevier, Elsevier, vol. 13(4), pages 598-625.
  13. Martin Cihák & Wim Fonteyne, 2009. "Five Years After," IMF Working Papers 09/68, International Monetary Fund.
  14. Julia Lendvai & Werner Roeger, 2010. "External deficits in the Baltics 1995 to 2007: Catching up or imbalances," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 398, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  15. Fabio Comelli, 2012. "Emerging Market Sovereign Bond Spreads," IMF Working Papers 12/212, International Monetary Fund.

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