The impact of the crisis on the monetary autonomy of Central and Eastern European countries
Where a country allows the free movement of capital and follows a free floating exchange rate policy, the monetary trilemma would suggest the existence of monetary autonomy, which is prejudiced when external shocks cause a significant decrease (divergence) or increase (contagion) in market co-movements. This study aims to analyse the extent to which daily changes in bond market returns and exchange rates of the Euro area, and the monetary policy measures of the European Central Bank (ECB) influenced the daily changes in the bond market returns and currencies of the Czech Republic, Hungary and Poland between 2002 and 2011. After rejecting the efficient market hypothesis for the capital and money markets under review, a dynamic conditional correlation is fitted to individual market pairs. Whether the differences between these are significant is analysed against extreme and normal daily movements in Euro area indicators. A movement is considered extreme where the empirical movement is an outlier for the theoretical normal distribution applicable to it. Although the objective function of monetary policy in Central and Eastern European countries is mostly aligned with that of the ECB, owing to differences in their fundamentals, collective actions taken on extreme days caused risk premiums to increase. Consequently, Central and Eastern European markets were much harder hit by adverse changes in the Euro area, while the impact of the ECB’s measures to enhance liquidity was not necessarily felt. It is doubtful, however, that the introduction of the Euro would eliminate such unfavourable phenomena.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Geert Bekaert & Campbell R. Harvey, 2003.
"Market Integration and Contagion,"
NBER Working Papers
9510, National Bureau of Economic Research, Inc.
- Oxana Babetskaia-Kukharchuk & Ian Babetskii & Jiri Podpiera, 2008. "Convergence in exchange rates: market's view on CE-4 joining EMU," Applied Economics Letters, Taylor & Francis Journals, vol. 15(5), pages 385-390.
- Markwat, T.D. & Kole, H.J.W.G. & van Dijk, D.J.C., 2008.
"Contagion as Domino Effect in Global Stock Markets,"
ERIM Report Series Research in Management
ERS-2008-071-F&A, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Markwat, Thijs & Kole, Erik & van Dijk, Dick, 2009. "Contagion as a domino effect in global stock markets," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 1996-2012, November.
- repec:nsr:niesrd:354 is not listed on IDEAS
- Jonathan Heathcote & Fabrizio Perri, 2001.
"Financial Globalization and Real Regionalization,"
01-11, New York University, Leonard N. Stern School of Business, Department of Economics.
- Heathcote, J. & Perri, F., 2001. "Financial Globalization and Real Regionalization," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-11, New York University, Leonard N. Stern School of Business-.
- Jonathan Heathcote, 2003. "Financial Globalization and Real Regionalization," Working Papers gueconwpa~03-03-20, Georgetown University, Department of Economics.
- Heathcote, Jonathan & Perri, Fabrizio, 2002. "Financial Globalization and Real Regionalization," CEPR Discussion Papers 3268, C.E.P.R. Discussion Papers.
- Jonathan Heathcote & Fabrizio Perri, 2002. "Financial Globalization and Real Regionalization," NBER Working Papers 9292, National Bureau of Economic Research, Inc.
- Heathcote, Jonathan & Perri, Fabrizio, 2001. "Financial Globalization and Real Regionalization," Working Papers 01-05, Duke University, Department of Economics.
- Giovanni Bonanno & Fabrizio Lillo & Rosario N. Mantegna, 2001.
"Levels of complexity in financial markets,"
- Bonanno, Giovanni & Lillo, Fabrizio & Mantegna, Rosario N., 2001. "Levels of complexity in financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 16-27.
- Pavel Cizek & Wolfgang Karl Härdle & Rafal Weron, 2005. "Statistical Tools for Finance and Insurance," HSC Books, Hugo Steinhaus Center, Wroclaw University of Technology, number hsbook0501.
- Eisenschmidt, Jens & Holthausen, Cornelia, 2010. "The minimum liquidity deficit and the maturity structure of central banks' open market operations: lessons from the financial crisis," Working Paper Series 1282, European Central Bank.
- Daniel Stavárek, 2009. "Assessment of the exchange rate convergence in Euro-candidate countries," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 11(25), pages 159-180, February.
- Király, Júlia & Nagy, Márton & Szabó E., Viktor, 2008.
"Egy különleges eseménysorozat elemzése - a másodrendű jelzáloghitel-piaci válság és (hazai) következményei
[Analysis of a special sequence of events - the crisis on the secondary mortgage market an," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 573-621.
- Iana Liadze & Ray Barrell & Professor E. Philip Davis, 2010. "Calibrating macroprudential policy," NIESR Discussion Papers 354, National Institute of Economic and Social Research.
- Marsili, Matteo & Raffaelli, Giacomo, 2006. "Risk bubbles and market instability," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 370(1), pages 18-22.
When requesting a correction, please mention this item's handle: RePEc:pfq:journl:v:57:y:2012:i:1:p:28-52. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Pál Péter Kolozsi)
If references are entirely missing, you can add them using this form.