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

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  • Joscha Beckmann
  • Ansgar Belke
  • Michael Kühl

Abstract

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

Suggested Citation

  • 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.
    • Handle: RePEc:kap:iecepo:v:9:y:2012:i:3:p:245-264
    DOI: 10.1007/s10368-012-0216-5
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    More about this item

    Keywords

    Cointegration; European integration; Financial markets; Restricted autoregressive model; Sentiments; E44; G15; P2;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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