Are “new” and “old” EU members becoming more financially integrated? A threshold cointegration analysis

We assess the degree of financial integration for a selected number of “new” EU member states with Germany. The analysis is performed using a threshold vector error-correction (TVECM) model with fixed rolling window. By employing this methodology we are able to evaluate the degree and dynamics of transaction costs resulting from various market imperfections. TVECM model is applied on interest rate data from different segments of financial markets covering the 1994–2006 period. The hypothesis we test is to what extent European integration tendencies resulted in a more efficient and integrated financial markets. Our findings support the gradual integration hypothesis.     

Controlling for the underreporting of remittances

Empirical studies that use self-reported data on remittances to measure the latter's impact on microeconomic incentives mostly ignore the potential errors associated with reporting/measurement issues. An econometric procedure to control for these errors is developed and applied to household level data from Armenia. We find evidence of systematic underreporting of remittances. After controlling for this, we find a strong negative impact of remittances on incentives to work.     

Remittances in Russia and Caucasus and Central Asia: The gravity model

Remittances are an important source of external financing in low- and middle-income countries. This paper uses the gravity model to analyze remittance flows in Russia and Caucasus and Central Asia countries. Standard gravity determinants, such as gross domestic product in sending and receiving countries, bilateral distance, existence of common borders and common official language, and fit remittance, flow well. Remittances also react to inflation and exchange rate movements in recipient countries to sustain their purchasing power. In line with the altruism hypothesis, remittances flow to countries with higher age dependency ratio. Remittances are countercyclical and help stabilize outputs in recipient countries. However, global shocks resulting in sharp output losses of sending countries would lead to large volatility and decline in remittance inflows in recipient countries.