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Global Integration of Central and Eastern European Financial Markets: The Role of Economic Sentiments

Ansgar Belke, Joscha Beckmann () and Michael Kühl ()

No 952, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: This paper examines the importance of different economic sentiments, e.g. consumer moods, for the Central and Eastern European countries (CEECs) during the transition process. We first analyze the importance of economic confidence with respect to the CEEC's financial markets. Since the integration of formerly strongly regulated markets into global markets can also lead to an increase of the dependence of the CEECs' domestic market performance from global sentiments, we also investigate the relationship between global economic sentiments and domestic income and share prices. Finally, we test whether the impact of global sentiments and stock prices on domestic variables increases proportionally with the degree of integration. For these purposes, we apply a structural cointegrating VAR (CVAR) framework based upon a restricted autoregressive model which allows us to distinguish between the long-run and the short-run dynamics. For the long run we find evidence supporting relationships between sentiments, income and share prices in case of the Czech Republic. Our results for the short run suggest that economic sentiments in general are strongly influenced by share prices and income but also offer some predictive power with respect to the latter. What is more, global sentiments play an important role in particular for the CEECs' share prices and income. The significance of this link increases with economic integration.

Keywords: Cointegration; European integration; financial markets; restricted autoregressive model; sentiments (search for similar items in EconPapers)
JEL-codes: E44 G15 P2 (search for similar items in EconPapers)
Pages: 36 p.
Date: 2009
New Economics Papers: this item is included in nep-eec, nep-mac and nep-tra
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http://www.diw.de/documents/publikationen/73/diw_01.c.344146.de/dp952.pdf (application/pdf)

Related works:
Journal Article: Global Integration of Central and Eastern European Financial Markets—The Role of Economic Sentiments (2011)
Working Paper: Global Integration of Central and Eastern European Financial Markets - The Role of Economic Sentiments (2010) Downloads
Working Paper: Global Integration of Central and Eastern European Financial Markets – The Role of Economic Sentiments (2010) Downloads
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