Nonlinearities and Parameter Instability in the Finance-Growth Nexus

This paper offers a re-assessment of the finance-growth nexus in a framework that allows to distinguish between short-run versus long-run effects. Our dataset contains information on 45 developed and developing countries over the period 1995-2011. We make use of the integration and cointegration properties of the data, establish a cointegrating relation and derive the long-run elasticities of per capita GDP with respect to employment, the physical capital stock, and financial development. We employ these results to specify an error correction model and assess whether the years of crisis have changed the relationship between finance and growth. (author's abstract)Series: Department of Economics Working Paper Serie

How Interdependent are Eastern European Economies and the Euro Area?

This article investigates the interrelations between the Euro area and five Central and Eastern European economies. Using an open economy framework, we derive theoretical restrictions to be imposed on the cointegration space of a structural vector error correction model. We employ generalized impulse response analysis to assess the effects of shocks in output, interest rates, the exchange rate, and relative prices on both areas. The results show strong international spillovers in output with the magnitude being similarly strong in both areas. Furthermore, we find multiplier effects in Central and Eastern Europe and some evidence for the European Central Bank´s desire toward price stability

After Two Decades of Integration: How Interdependent are Eastern European Economies and the Euro Area?

This article investigates the interrelations between the initial members of the Euro area and five important Central and Eastern European economies. We set up a theoretical open economy model to derive the Purchasing Power Parity, the Interest Rate Parity, the Fisher Inflation Parity, and an output gap relation. After taking convergence into account, they are used as restrictions on the cointegration space of a structural vector error correction model. We then employ generalized impulse response analysis to assess the dynamic effects of shocks in output and interest rates on the respective other area as well as the implications of shocks in the exchange rate and in relative prices on both areas. The results show a high degree of interconnectedness between the two economies. There are strong positive spillovers in output to the respective other region with the magnitude of the impact being similarly strong in both areas. Furthermore, we find a multiplier effect being present in Eastern Europe and some evidence for the European Central Banks' desire towards price stability. (author's abstract)Series: Department of Economics Working Paper Serie

How interdependent are Eastern European economies and the Euro area?

This article investigates the interrelations between the Euro area and five Central and Eastern European economies. Using an open economy framework, we derive theoretical restrictions to be imposed on the cointegration space of a structural vector error correction model. We employ generalized impulse response analysis to assess the effects of shocks to output, interest rates, the exchange rate, and relative prices on both areas. The results show strong inter-regional spillovers of output shocks with the magnitude being similarly strong in both areas. Furthermore, we find multiplier effects in Central and Eastern Europe and some evidence for the European Central Bank's desire for price stability