Ali M. Kutan

Institutional Antecedents of Corporate Governance Legitimacy

The authors studied panel data for corporate governance ratings in 50 countries between 1997 and 2005 to understand what the country-level predictors of corporate governance legitimacy might be. Using neo-institutional theory, they found that all three pillars of institutionalization influenced perceptions of corporate governance at the national level—specifically, (a) the greater the extent of law and order, (b) the more the culture emphasized global competitiveness, and (c) the less the prevalence of corruption, the higher the corporate governance legitimacy within a nation. This study refines and extends the comparative corporate governance literature, as well as the neo-institutional perspective.

Sources of Real Exchange Rate Fluctuations in Transition Economies: The Case of Poland and Hungary

This paper examines Bradas (1998) conjecture about the path of real exchange rates in two successful transition economies, Hungary and Poland. He argues that, as a result of the very diverse fiscal and monetary policies to be found among these economies, real exchange rates in some economies should follow a path that mirrors mainly the effect of real shocks and others a path reflecting the monetary shocks. To test this hypothesis, we use a popular structural VAR model and, assuming long-run neutrality of nominal shocks, we decompose the real exchange rate and price movements into those attributable to real and nominal shocks. Using monthly data from 1990 to 1999 for Hungary and Poland, we find that nominal shocks had a major influence in explaining real exchange rate movements in Poland, while real shocks had a larger influence on real exchange rate movements in Hungary. Key words: real exchange rate, inflation, transition economies, structural VARs, exchange rate regimes, and exchange rate modeling.

The Effects of Transition and Political Instability on Foreign Direct Investment Inflows: Central Europe and the Balkans

This paper examines the effect of transition and of political instability on FDI flows to the transition economies of Central Europe, the Baltics and the Balkans. We find that FDI to transition economies unaffected by conflict and political instability exceed those that would be expected for comparable West European countries. Success with stabilization and reform tends to increase FDI inflows. In the case of Balkan counties, conflict and instability have reduced FDI inflows below what one would expect for comparable West European countries, and reform and stabilization failures have further reduced FDI to the region. Thus the economic costs of instability in the Balkans have been quite high.

The Reaction of Asset Prices to Macroeconomic Announcements in New EU Markets: Evidence from Intraday Data

We estimate the impact of macroeconomic news on composite stock returns in three emerging European Union financial markets (the Budapest BUX, Prague PX-50, and Warsaw WIG-20), using intraday data and macroeconomic announcements. Our contribution is twofold. We employ a larger set of macroeconomic data releases than used in previous studies and also use intraday data, an excess impact approach, and foreign news to provide more reliable inferences. Composite stock returns are computed based on five-minute intervals (ticks) and macroeconomic news are measured based on the deviations of the actual announcement values from their expectations. Overall, we find that all three new EU stock markets are subject to significant spillovers directly via the composite index returns from the EU, the U.S. and neighboring markets; Budapest exhibits the strongest spillover effect, followed by Warsaw and Prague. The Czech and Hungarian markets are also subject to spillovers indirectly through the transmission of macroeconomic news. The impact of EU-wide announcements is evidenced more in the case of Hungary, while the Czech market is more impacted by U.S. news. The Polish market is marginally affected by EU news. In addition, after decomposing pooled announcements, we show that the impact of multiple announcements is stronger than that of single news. Our results suggest that the impact of foreign macroeconomic announcements goes beyond the impact of the foreign stock markets on Central and Eastern European indices. We also discuss the implications of the findings for financial stability in the three emerging European markets.

The Convergence of Monetary Policy Between Candidate Countries and the European Union

A non-phase separable glass material for fabricating a GRIN lens comprises 5-20 mole % boron oxide and ratio R of network modifiers in mole % to the network former boron oxide in mole % is in the range of about 1-1.5. The melted preform of such glass material is extruded through an opening to form a glass rod where the extrusion process eliminates bubbles that may be present in the preform. Neodymium oxide may be added in the frit material for forming the preform to reduce friction forces in the extrusion process and reduces the stress in the glass rod. Centerless grinding may be performed to control the diameter and roughness of the surface of the rod to control the diffusion parameters during the subsequent ion-exchange.

The effects of transition and political instability on foreign direct investment inflows

This paper examines the effects of transition and of political instability on foreign direct investment (FDI) flows to the transition economies of Central Europe, the Baltics and the Balkans. We find that FDI flows to transition economies unaffected by conflict and political instability exceed those that would be expected for comparable West European countries. Success with stabilization and reform increased the volume of FDI inflows. In the case of Balkan counties, conflict and instability reduced FDI inflows below what one would expect for comparable West European countries, and reform and stabilization failures further reduced FDI to the region. Thus, we find that the economic costs of instability in the Balkans in terms of foregone FDI have been quite high.

The J-curve in the emerging economies of Eastern Europe

Devaluation or depreciation of a currency worsens the trade balance before improving it, resulting in a J-curve pattern. A new definition of the hypothesis implies a short-run deterioration combined with the long-run improvement. By using monthly data over the January 1990–June 2005 period from 11 east European emerging economies, most of which are the new European Union (EU) members or the EU candidate countries, this article uses the bounds testing approach to cointegration and error-correction modelling and finds empirical support for the J-curve hypothesis in three countries of Bulgaria, Croatia and Russia. The results have important implications for policymakers involved in economics in terms of using exchange rate policy as a policy device to achieve real convergence toward EU standards.

The exchange rate and the balance of trade: The Turkish experience

In this article, we examine the responsiveness of Turkeys trade balance to devaluation accompanied by trade liberalisation. Our results show that the trade balance was responsive to changes in the exchange rate that were brought about by the economic reforms introduced in the 1980s, suggesting that exchange rate policy was able to create and maintain a satisfactory balance of trade position in the 1980s and early 1990s.

Inflation and output as predictors of stock returns and volatility: international evidence

Using monthly post-WWII data from 13 developed and developing countries and a battery of GARCH models, the influential study of Schwerts (Journal of Finance, 54 (5), 1115-1153, 1989) on US stock market volatility is extended to an international setting. In line with the evidence reported in Schwert (1989), it is found that macroeconomic volatility, measured by movements in inflation and real output, have a weak predictive power for stock market volatility and returns. The findings suggest that there is no strong support for the Fisher effect in international stock returns. Moreover, with the exception of a few countries, a procyclical monetary policy response seems evident in data during the sample period.

The End of Moderate Inflation in Three Transition Economies

This paper examines the moderation of inflation in three transition economies, the Czech Republic, Hungary and Poland at the end of the 1990s. We argue that the institutions for the conduct of monetary policy in these countries were relatively weak and that monetary policy was unsupported by fiscal policy and hampered by multiple objectives. Using a VAR model of inflation, we show that, under a variety of assumptions, foreign prices and the persistence of inflation were the key determinants of inflation in these countries. From this finding we conclude that the moderation of inflation in the Czech Republic, Hungary and Poland was due largely to the decline in import prices from 1997 on, and thus it is likely be a temporary phenomenon.