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Forecasting Financial Stress and Economic Sensitivity in CEE countries

Maciej Krzak, Grzegorz Poniatowski and Katarzyna W¹sik

No 474, CASE Network Studies and Analyses from CASE-Center for Social and Economic Research

Abstract: This paper presents forecasts for the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) for the period 2014-2015 for six countries in the region, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland. It is a continuation of the endeavor to construct synthetic indices measuring financial stress and economic sensitivity for twelve Central and East European countries using the Principal Component Analysis. In order to obtain forecasts of the FSI, we estimated Vector Autoregression (VAR) models on monthly data for the period 2001-2012 separately for all the countries. Using quarterly historical values of ESI and FSI, we estimated Dynamic Panel Data Model for the complete sample of countries. Parameters of the model were later used for forecasting the ESI. Obtained results suggest that the FSI will start to rise in 2014 in the Czech Republic, Lithuania, and Estonia. For Latvia and Hungary, we observed a conversion in the trend, i.e. at the beginning of 2015, when the index should start to fall. According to our forecasts, the ESI will be rising in the next two years, except for Hungary, where we predict a continuous decrease in economic sensitivity.

Keywords: financial stress; economic sensitivity; economic indicators; Central and Eastern Europe (search for similar items in EconPapers)
JEL-codes: C43 E32 G01 (search for similar items in EconPapers)
Pages: 19
Date: 2014-07
New Economics Papers: this item is included in nep-for, nep-mac and nep-tra
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