Article2004

Capital flows and speculative attacks in prospective EU member states1

42 citations0/0 files storedEconomics of Transition

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Global Financial Crisis and Policies Monetary Policy and Economic Impact Post-Communist Economic and Political Transition

Abstract

Abstract This paper examines the capital flow experience of transition economies which are also prospective EU members with a view to shedding light on the likely problems they might encounter with exchange rate policy in the run up to euro area membership. We show that they have been experiencing fairly sizeable capital flows since the early 1990s. We explain these flows using two separate models. The first explains the level of capital flows using panel data from the prospective EU members. The second concentrates specifically on estimating the probability of a country experiencing downward speculative pressure. In both cases, the contribution of domestic factors and contagion is explored. The results suggest that, while domestic factors have some role to play, it is rather limited. Moreover, there is clear evidence of contagion effects, suggesting that macroeconomic policy in the prospective EU members will be complicated by capital flows in the run up to euro area membership.

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References

1988Unemployment Insurance And Unemployment Spells 1995Exchange Market Mayhem: The Antecedents and Aftermath of Speculative Attacks 1984Collapsing exchange-rate regimes 1990Unemployment Insurance and Unemployment Spells 1979Econometric Methods for the Duration of Unemployment 1995Models of Currency Crises with Self-Fulfilling Features 1988The advantage of tying one's hands 1999Do capital controls and macroeconomic policies influence the volume and composition of capital flows? Evidence from the 1990s

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