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The cross-country importance of global sentiments—evidence for smaller EU countries

  • Joscha Beckmann

    ()

  • Ansgar Belke

    ()

  • Michael Kühl

    ()

This paper examines the importance of the economic sentiments of some macroeconomic key variables in Estonia, Slovenia and Latvia. We analyze the importance of domestic as well as foreign sentiments with respect to these economies against the background of their accession to the European Monetary Union. For this purpose, we develop and apply a framework which is based on a restricted autoregressive model. We focus on two issues: firstly, we investigate the relationship between domestic stock prices, income and sentiments; and, secondly, we take external effects stemming from EMU and US share prices and sentiments into account. Our results show that European sentiments are important for income and domestic sentiments. Furthermore, we are able to establish linkages between global share prices and domestic income. From a more general perspective, we find a significant positive influence stemming from (domestic) share prices on sentiments in Estonia and Latvia, and also find evidence for an inverse relationship in Latvia. Copyright Springer-Verlag 2012

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File URL: http://hdl.handle.net/10.1007/s10368-012-0216-5
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Article provided by Springer in its journal International Economics and Economic Policy.

Volume (Year): 9 (2012)
Issue (Month): 3 (September)
Pages: 245-264

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Handle: RePEc:kap:iecepo:v:9:y:2012:i:3:p:245-264
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  1. Gregory W. Brown & Michael T. Cliff, 2005. "Investor Sentiment and Asset Valuation," The Journal of Business, University of Chicago Press, vol. 78(2), pages 405-440, March.
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  13. Klaus Weyerstrass & Reinhard Neck, 2008. "Macroeconomic Consequences of the Adoption of the Euro: The Case of Slovenia," International Advances in Economic Research, International Atlantic Economic Society, vol. 14(1), pages 1-10, February.
  14. Gabrisch, Hurbert & Orlowski, Lucjan, 2009. "Interest Rate Convergence in the Euro-Candidate Countries: Volatility Dynamics of Sovereign Bond Yields," Working Papers 2009001, Sacred Heart University, John F. Welch College of Business.
  15. Solnik, Bruno H., 1974. "An equilibrium model of the international capital market," Journal of Economic Theory, Elsevier, vol. 8(4), pages 500-524, August.
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