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Capital Flows and Speculative Attacks in Prospective EU Member States

  • Heather D Gibson

    ()

    (Bank of Greece, Economic Research Department)

  • Euclid Tsakalotos

    (Athens University of Economics and Business)

This paper examines the capital flow experience of transition economies who are also prospective EU members with a view to shedding light on the likely problems they might encounter with exchange rate policy in the run up to euro area membership. We show that they have been experiencing fairly sizeable capital flows since the early 1990s. We explain these flows using two separate models. The first explains the level of capital flows using panel data from the prospective EU members. The second concentrates specifically on estimating the probability of a country experiencing downward speculative pressure. In both cases, the contribution of domestic factors and contagion is explored. The results suggest that while domestic factors have some role to play, it is rather limited. Moreover there is clear evidence of contagion effects, suggesting that macroeconomic policy in the prospective EU members will be complicated by capital flows in the run up to euro area membership.

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File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper200306.pdf
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Paper provided by Bank of Greece in its series Working Papers with number 06.

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Length: 35 pages
Date of creation: Oct 2003
Date of revision:
Publication status: Published in Economics of Transition, 2004, 12 (3), pp.559-586.
Handle: RePEc:bog:wpaper:06
Contact details of provider: Web page: http://www.bankofgreece.gr

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  12. Stanislaw Gomulka, 1998. "Managing capital flows in Poland, 1995-98," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(2), pages 389-396, November.
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  17. repec:cup:cbooks:9780521495479 is not listed on IDEAS
  18. Heather D. Gibson, 2003. "Realignment probabilities and reputation effects in the EMS," Oxford Economic Papers, Oxford University Press, vol. 55(2), pages 314-335, April.
  19. Ozkan, F Gulcin & Sutherland, Alan, 1995. "Policy Measures to Avoid a Currency Crisis," Economic Journal, Royal Economic Society, vol. 105(429), pages 510-19, March.
  20. Chen, Zhaohui & Giovannini, Alberto, 1997. "The determinants of realignment expectations under the EMS: Some empirical regularities," European Economic Review, Elsevier, vol. 41(9), pages 1687-1707, December.
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