IDEAS home Printed from https://ideas.repec.org/p/zbw/ifwasw/454.html
   My bibliography  Save this paper

An analysis of the impact of the European convergence Phillips Curve: Evidence from US and Euro area in new EU member countries

Author

Listed:
  • Friedrich, Christian
  • Žďárek, Václav

Abstract

This paper examines how international investors evaluate the change in the risk-return profile often Central and Eastern European countries that recently entered the European Union (EU). By supplementing international investment position data provided by IMF's International Financial Statistics with data obtained from Lane and Milesi-Ferretti's External Wealth of Nations Mark II Database, we create a unified data set of external assets and liabilities for new EU member states (NMS) ranging from 1993 to 2007. Drawing from the so called 'push-pull' factor approach and the achievements of Modern Portfolio Theory, we then collect an extensive set of international controls and a number of local risk-return variables that served as transmission channels for the benefits of EU integration and hence, potentially attracted foreign capital. These variables finally enter a panel data model with the Feasible Generalized Least Squares, (FGLS) and linear regression method with panel-corrected standard errors (PCSE) as proposed by Beck and Katz (1995). Our results indicate that convergence towards the EU has had a significant impact on the liability side of international investment positions in NMS. Especially for debt and portfolio equity liabilities, the region's affiliation with the EU has mitigated the negative evaluation of local macroeconomic risk factors by international investors. Nevertheless, also global forces turned out to be important drivers of the recent build-up in external liabilities and show that the region's capital supply still depends on actions taken in other parts of the world.

Suggested Citation

  • Friedrich, Christian & Žďárek, Václav, 2009. "An analysis of the impact of the European convergence Phillips Curve: Evidence from US and Euro area in new EU member countries," Kiel Advanced Studies Working Papers 454, Kiel Institute for the World Economy (IfW).
  • Handle: RePEc:zbw:ifwasw:454
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/37139/1/61894558X.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. J. Tobin, 1958. "Liquidity Preference as Behavior Towards Risk," Review of Economic Studies, Oxford University Press, vol. 25(2), pages 65-86.
    2. Taylor, Mark P & Sarno, Lucio, 1997. "Capital Flows to Developing Countries: Long- and Short-Term Determinants," World Bank Economic Review, World Bank Group, vol. 11(3), pages 451-470, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Capital flows; push-pull factor approach; EU enlargement; new EU member states;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:ifwasw:454. 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: (ZBW - Leibniz Information Centre for Economics). General contact details of provider: http://edirc.repec.org/data/iwkiede.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.