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

Authors

  • Joscha Beckmann,

    Corresponding author
    1. University of Duisburg-Essen, Germany
    • Beckmann: University of Duisburg-Essen, Universitätsstrasse 12, 45117 Essen, Germany. Tel: +49(201) 183-3215; Fax: +49(201) 183-4181; E-mail: joscha.beckmann@uni-due.de. Belke (corresponding author): Research Director International Macroeconomics, DIW Berlin, and Chair for Macroeconomics, Department of Economics, University of Duisburg-Essen, Germany. Tel: +49(201) 183-2277; Fax: +49(201) 183-4181; E-mail: ansgar.belke@uni-due.de. Kühl: Universität Göttingen, Platz der Göttinger Sieben 3, 37073 Göttingen, Germany. Tel: +49(551) 39-7335; Fax: +49(551) 39-7093. E-Mail: michael-kuehl@wiwinf.uni-goettingen.de.

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  • Ansgar Belke,

    Corresponding author
    1. Department of Economics, University of Duisburg-Essen, Germany
    • Beckmann: University of Duisburg-Essen, Universitätsstrasse 12, 45117 Essen, Germany. Tel: +49(201) 183-3215; Fax: +49(201) 183-4181; E-mail: joscha.beckmann@uni-due.de. Belke (corresponding author): Research Director International Macroeconomics, DIW Berlin, and Chair for Macroeconomics, Department of Economics, University of Duisburg-Essen, Germany. Tel: +49(201) 183-2277; Fax: +49(201) 183-4181; E-mail: ansgar.belke@uni-due.de. Kühl: Universität Göttingen, Platz der Göttinger Sieben 3, 37073 Göttingen, Germany. Tel: +49(551) 39-7335; Fax: +49(551) 39-7093. E-Mail: michael-kuehl@wiwinf.uni-goettingen.de.

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  • Michael Kühl

    Corresponding author
    1. Universität Göttingen, Germany
    • Beckmann: University of Duisburg-Essen, Universitätsstrasse 12, 45117 Essen, Germany. Tel: +49(201) 183-3215; Fax: +49(201) 183-4181; E-mail: joscha.beckmann@uni-due.de. Belke (corresponding author): Research Director International Macroeconomics, DIW Berlin, and Chair for Macroeconomics, Department of Economics, University of Duisburg-Essen, Germany. Tel: +49(201) 183-2277; Fax: +49(201) 183-4181; E-mail: ansgar.belke@uni-due.de. Kühl: Universität Göttingen, Platz der Göttinger Sieben 3, 37073 Göttingen, Germany. Tel: +49(551) 39-7335; Fax: +49(551) 39-7093. E-Mail: michael-kuehl@wiwinf.uni-goettingen.de.

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    • We gratefully acknowledge valuable comments from three anonymous referees and from the participants of the CICM Conference “20 Years of Transition in Central and Eastern Europe: Money, Banking and Financial Markets,” 17–18 September 2009, London.


Abstract

This paper examines the importance of different economic sentiments for the Central and Eastern European countries (CEECs) during the transition process. We first analyze the importance of economic confidence with respect to the CEECs' financial markets. Since the integration of formerly strongly-regulated markets into global markets can also lead to an increase in the dependence of the CEECs' economies on global sentiments, we also investigate the relationship between global economic sentiments, domestic income, and share prices. Applying a restricted cointegrating VAR (CVAR) framework, which allows us to distinguish between the long-run and the short-run dynamics, our results for the short run suggest that economic sentiments are influenced by share prices but also offer some predictive power with respect to the latter. What is more, European sentiments play an important role in particular for the CEECs' income and sentiments.

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