Dynamic interactions between Central European currencies and the euro

We argue that the non-euro EU currencies of Central European countries have moved increasingly together with the euro in foreign exchange markets. To prove this point, we examine the dynamics of cross-elasticity between selected Central European currencies (the Czech koruna, Polish zloty, and Hungarian forint) and the euro exchange rates in U.S. dollar terms using daily data for the January 4, 2000 to April 5, 2019 sample period. We adopt the cross-elasticity model originally proposed and tested for the EU currencies by Orlowski (2016). To test the currency co-movements over time, we employ the Bai-Perron multiple breakpoint regression and two-state Markov switching tests. We find evidence of increasing co-movements between the Central European currencies and the euro that become particularly pronounced in times of financial distress. Co-movements of local exchange rates with the euro are also more pronounced during the euro-periphery sovereign debt crisis.     

Sustainable development of small‐ and medium‐sized enterprises in the European Union: A taxonomy of circular economy practices

This paper focuses on the implementation of circular economy (CE) practices in small‐ and medium‐sized firms in all 28 European Union (EU) countries. The analyses take into account the hierarchical nature of the collected data as firms are nested within EU countries, that is, the heterogeneity between different types of firms and countries according to practices and attitudes towards CE. The multilevel latent class model identifies groups of firms and groups of EU countries that are homogeneous in terms of CE, that is, how the homogeneous groups of small‐ and medium‐sized enterprises (SMEs) are distributed across the groups of EU countries. These results, together with the fact that firms with similar CE attitudes and practices have different demographic and business profiles across groups of countries, shed further light on the topic of green behavior in the EU with implications for businesses' environmental policies. Moreover, indications emerge that European policies favoring the implementation of CE practices should be targeted at least for subgroups of European countries, considering the different composition by typology of SMEs operating in their territories and that, at the same time, policies should be defined within each group of countries to account for the specific features of each of the four classes of SMEs.     

Interdependence between Eastern and Western European stock markets: Evidence from intraday data

We analyze comovements among three stock markets in Central and Eastern Europe and, in addition, interdependence which may exist between Western European (DAX, CAC, UKX) and Central and Eastern European (BUX, PX-50, WIG-20) stock markets. The novelty of our paper rests mainly on the use of 5-min tick intraday price data from mid-2003 to early 2005 for stock indices and on the wide range of econometric techniques employed. We find no robust cointegration relationship for any of the stock index pairs or for any of the extended specifications. There are signs of short-term spillover effects both in terms of stock returns and stock price volatility. Granger causality tests show the presence of bidirectional causality for returns as well as volatility series. The results based on a VAR framework indicate a more limited number of short-term relationships among the stock markets.     

The Unemployment–Output Tradeoff in Transition Economies: Does Okun''s Law Apply?

This paper investigates whether an Okun-type relationship between output and unemployment is taking hold in formerly planned economies as they move towards the market. Using a first-differences variant of Okun's Law, we test for its presence in 25 transition countries divided into groups of ``reform leaders' and ``reform laggards.' For leaders, represented by the 10 European Union (EU) accession countries, Okun's Law is detected in both 1991–94 and 1995–2000 periods. For laggards, represented by the remaining group, it is present only for the later period and only when countries affected by wars are removed from the sample. A comparison of unemployment–output elasticities and unemployment levels in EU candidates and EU members themselves indicates that their labor markets might be converging.     

Linkages between emerging and developed equity markets: Empirical evidence in the PMG framework

This paper empirically investigates the international equity market causal links between Central and South-Eastern Europe, on the one hand, and developed countries (Western Europe and the United States), on the other hand, over the monthly sample period spanning from October 2000 to September 2012. Unlike previous studies, we use the pooled mean group (PMG) approach of Pesaran et al. (1999), which is suitable to estimate dynamic heterogeneous panels to draw reliable conclusions. After cointegration is found between the stock markets of interest, the PMG estimates show evidence of each market's sensitivity to the fluctuations of the other markets over both the short- and long-run, supporting the feedback hypothesis. The impact of developed markets on emerging markets is more important than that of emerging markets on developed markets and the bidirectional impact is higher between emerging and Western European markets than between these emerging markets and the United States. These conclusions are robust to an alternative specification, which supports the view that the stock markets are closely interlinked. The findings are of great interest and have important implications for policy makers, investors, and practitioners.     

Long‐run relations in European electricity prices

This paper analyses the interdependencies existing in wholesale electricity prices in six major European countries. The results of a robust multivariate long‐run dynamic analysis reveal the presence of four highly integrated central European markets (France, Germany, the Netherlands and Austria). The trend shared by these four electricity markets appears to be common also to gas prices, but not to oil prices. The existence of a common long‐term dynamics among electricity prices and between electricity prices and gas prices can be explained by the similarity of the market design across Europe and by the same marginal generation technology. Since standard unit root and cointegration tests are not robust to the peculiar characteristics of electricity prices time series, we also develop a battery of robust inference procedures that should assure the reliability of our results. Copyright © 2009 John Wiley & Sons, Ltd.     

Bubbles detection for inter-war European hyperinflation: A threshold cointegration approach

This paper undertakes an empirical investigation into the existence of inflationary bubbles during the inter-war European hyperinflation for Germany, Hungary, Poland and Russia. Our Monte Carlo simulations show that the residual-based threshold cointegration methodology of Caner and Hansen (2001) is better able to detect periodically collapsing bubbles. Moreover, this methodology possesses greater power against nonlinear stationary alternatives in a finite sample than several commonly used cointegration tests that do not allow for multiple regime shifts. The empirical results of the threshold cointegration tests provide evidence of stationary, regimeswitching processes in money demand dynamics, but suggest that there are no inflationary bubbles in any of the countries.     

Long-run and short-run determinants of sovereign bond yields in advanced economies

We analyze determinants of sovereign bond yields in 22 advanced economies over the 1980–2010 period using panel cointegration techniques. The application of the cointegration methodology allows distinguishing between long-run (debt-to-GDP ratio, potential growth) and short-run (inflation, short-term interest rates, etc.) determinants of sovereign borrowing costs. We find that in the long run, government bond yields increase by about 2 basis points in response to a 1 percentage point increase in government debt-to-GDP ratio and by about 45 basis points in response to a 1 percentage point increase in the potential growth rate. In the short run, sovereign bond yields deviate from the level determined by the long-run fundamentals, but about half of the deviation adjusts in one year. When considering the impact of the global financial crisis on sovereign borrowing costs in euro area countries, the estimations suggest that spreads against Germany in some European periphery countries exceeded the level determined by fundamentals in the aftermath of the crisis, while some North European countries have benefited from “safe-haven” flows.     

Determinants of European stock market integration

We analyse the determinants of stock market integration among EU member states for the period 1999–2007. First, we apply bivariate DCC-MGARCH models to extract dynamic conditional correlations between European stock markets, which are then explained by interest rate spreads, exchange rate risk, market capitalisation, and business cycle synchronisation in a pooled OLS model. By grouping the countries into euro area countries, “old” EU member states outside the euro area, and new EU member states, we also evaluate the impact of euro introduction and the European unification process on stock market integration. We find a significant trend toward more stock market integration, which is enhanced by the size of relative and absolute market capitalisation and hindered by foreign exchange risk between old member states and the euro area. Interest rate spreads and business cycle synchronisation are also significant factors in explaining equity market integration.     

Tests of seasonal integration and cointegration in multivariate unobserved component models

This paper considers tests of seasonal integration and cointegration for multivariate unobserved component models. First, the locally best invariant (LBI) test of the null hypothesis of a deterministic seasonal pattern against the alternative of seasonal integration is derived for a model with Gaussian i.i.d. disturbances and deterministic trend. Then the null hypothesis of seasonal cointegration is considered and a test for common nonstationary components at the seasonal frequencies is proposed. The tests are subsequently generalized to account for stochastic trends, weakly dependent errors and unattended unit roots. Asymptotic representations and critical values of the tests are provided, while the finite sample performance is evaluated by Monte Carlo simulation experiments. Finally, the tests are applied to the series of industrial production of the four largest countries of the European Monetary Union. It is found that Germany does not appear to cointegrate with the other countries at most seasonal frequencies, while there seems to exist a common nonstationary seasonal component between France, Italy and Spain. Copyright © 2006 John Wiley & Sons, Ltd.     

A Long-Term Analysis of Regional Housing Markets and Inflation

This paper reexamines the relationship between inflation and residential property over a 30-year period. Using conventional OLS models and cointegration and causality models we examine regional markets in the United Kingdom. The OLS tests provide little evidence of a consistent and stable relationship, with large variations in the results between different regions. The cointegration results, and in particular those obtained using the Engle-Granger procedure, provide strong evidence to support the hypothesis that housing and inflation are cointegrated. Additionally, the causality results provide strong evidence to support the hypothesis that housing leads inflation.     

Does long-run real interest parity hold among EU countries? Some new panel data evidence

This paper tests for long-run ex post real interest parity (RIP) among the major European Union (EU) countries over the period 1979–1998 using a new test, due to Im, Pesaran, and Shin (1997), that allows one to confirm or reject RIP depending on whether a panel data set comprising real interest differentials is stationary or not. This methodology offers substantial advantages over the univariate Augmented Dickey Fuller (ADF) tests that might accept the null of non-stationarity on account of low test power. Strong evidence of onshore RIP occurs during 1986–1990 and 1993–1998 with the half life of a random shock to parity estimated at 2–3 months. There is no evidence of RIP during 1990–1993 despite the easing of remaining capital controls in 1990.     

Profit efficiency in the European Union banking industry: a directional technology distance function approach

We employ the directional technology distance function approach and present estimates of profit efficiency in the 25 European Union (EU) member states over the period 1998–2008. This method decomposes profit efficiency into its technical and allocative components. We investigate potential efficiency differences across the old EU region and the new EU member states, across countries and across banks of different size. Our results indicate a significant level of profit inefficiency for the EU region, which is predominantly attributed to allocative inefficiency. Our findings also suggest that banks operating in the old EU region are, on average, more profit efficient than credit institutions in the new EU member states. Overall, we observe considerable variation of efficiency scores across countries and different patterns in efficiency change over time, as well as a negative relationship between bank size and efficiency.     

Market efficiency and cointegration: Some evidence in Pacific-Basin black exchange markets

This paper investigates the efficiency of the black exchange markets in Indonesia, Malaysia, the Philippines, South Korea, Taiwan, and Thailand. The study applies unit root and cointegration tests to examine black exchange market efficiency of Pacific-Basin countries. The generating process of black exchange rates appears to be a random walk. This is consistent with Gupta (1981) and other foreign exchange rate unit root test studies. Johansen cointegration tests are performed for these black exchange markets together with Japan and Singapore. The results suggest that there is at least one unit root among the black market exchange rates. Hence, black exchange markets are not collectively efficient.     

A re-examination of housing bubbles: Evidence from European countries

This study uses data from six Eurozone countries and the United Kingdom between 1980Q1 and 2018Q4 to examine whether these countries had housing bubbles during the observed period. Whereas typical studies make strictly limited assumptions regarding interest rates, we make an unconventional argument for the necessity of testing the integration relationship between the price–rent ratio and the interest rate reciprocal to determine the existence of housing bubbles. To verify this study’s proposition, two housing bubble indicators were adopted to dynamically examine periods of housing bubbles in European countries by using a series of individual countries and panel data from Eurozone countries. According to the empirical results for individual countries, although the price–rent ratio indicates the occurrence of housing booms in the targeted countries, the evidence for housing bubbles is unclear. The dynamic bubble indicator revealed that housing bubbles occurred in France and Ireland within a short period in 1993Q3 and 2000Q2, respectively. Spain experienced two short-term housing bubbles in 1990Q1 and 2015Q1. The short-term bubbles signify that the housing markets were efficient. Once the price–rent ratio failed to converge toward the nominal interest rate, market traders’ rational behavior can immediately correct the short-term market divergence. The panel data of the Eurozone countries also reveals that simply using the price–rent ratio for examination may underestimate the correction of the housing markets. In conclusion, the results of this study demonstrate the importance of the interest rate in controlling the housing market.     

A Respecified Fama French Three‐Factor Model for the New European Union Member States

This study uses factor models to explain stock market returns in the Eastern European (EE) countries that joined the European Union (EU) in 2004. In line with other studies, we find that the market value of equity component in the Fama French (1993) three‐factor model performs poorly when applied to our emerging markets dataset. We propose a significant amendment to the standard three‐factor model by replacing the market value of equity factor with a term that proxies for accounting manipulation. We show that our three‐factor model is able to explain returns in the EE EU nations significantly better than the Fama French (1993) three‐factor model, hereby offering an alternative model for use in the numerous markets in which previous studies have found little correlation between market value of equity and equity returns.     

Mapping circular economy activities in the European Union: Patterns of implementation and their correlates in small and medium‐sized enterprises

With the European Commission looking for ways to incentivize the adoption of circular economy (CE) activities by small and medium‐sized enterprises (SMEs) in the European Union (EU), further insights into the implementation of CE activities across member states are needed. We analyse a European Commission survey conducted in 2016 among approximately 11,000 firms in EU‐28 member states in order to throw light on the conditions in which SMEs engage in five specific CE activities. In contrast to previous studies arguing that CE activities are independent of each other, we present novel findings demonstrating that seven patterns of engagement in CE can be identified in which activities are systematically interdependent. Further, we show that these patterns are associated with the organizational properties of SMEs and are differentially distributed among EU member states and industrial sectors. The interdependency of activities forms a hierarchy in which waste minimization is the most likely activity to be implemented in SMEs, followed, in descending order of likelihood, by replanning of energy use, redesigning products and services, and finally using renewable energy and replanning water usage. The findings have theoretical, managerial, and policy implications for the adoption of interdependent CE activities.     

Is the liberalization policy effective on improving bivariate cointegration of current accounts, foreign exchange, stock prices? Further evidence from Asian markets

This paper fist examines three set of bivariate cointegrations between any two of current accounts, stock markets, and currency exchange markets in 10 Asian countries. Furthermore, this work examined the effect of country characters on this bivariate cointegration. Our findings suggest that for three sets of cointegration test, each sample country at least exists one cointegration. India consistently exhibited a bi-directional causal relationship between any two of three indicators. Unlike Pan et al. (Int Rev Econ Financ 16:503–520, 2007 and Phylaktis and Ravazzolo (J Int Money Financ 24:1031–1053, 2005), this study found that such cointegration is influenced by three characteristics: capital control; flexibility in foreign exchange rates; and the ratio of trade to GDP. These characteristics are the result of liberalization in each Asian country. This implies that liberalization policies are effective on improving the cointegration between any two of financial markets and current account for 10 Asian countries.     

The nexus between exchange rates and stock markets: evidence from the euro-dollar rate and composite European stock indices using rolling analysis

Both the goods market hypothesis and the portfolio balance theory, suggest a nexus between exchange rates and stock prices, albeit with a different direction of causality. This paper, using daily data, takes up the issue of the linkages between stock prices and exchange rates in the case of the euro-dollar rate and two composite European stock market indices: the FTSE Eurotop 300 and FTSE eTX All-Share Index. It addresses the causal ordering issue between the two markets using rolling unit root, cointegration and Granger causality tests. This methodological approach allows for the emergence of a clearer picture of the possible dynamic linkages between exchange rates and stock prices. The empirical results provide evidence of time-varying causality between the two markets.