Amalia Morales-Zumaquero

Exchange Rate Regimes, Foreign Exchange Volatility, and Export Performance in Central and Eastern Europe: Just another Blur Project?

The authors attempt to analyze the direct impact of exchange rate volatility on the export performance of ten Central and Eastern European transition economies, as well as its indirect impact via changes in exchange rate regimes. Not only aggregate but also bilateral and sectoral export flows are studied. To this end, the authors first analyze shifts in exchange rate volatility linked to changes in the exchange rate regimes and, second, they use these changes to construct the dummy variables that they include in their export function. The results suggest that the size and the direction of the impact of forex volatility and of regime changes on exports vary considerably across sectors and countries and that they may be related to specific periods.

Volatility in EMU sovereign bond yields: permanent and transitory components

This paper explores the evolving relationship in the volatility of sovereign yields in the European Economic and Monetary Union (EMU). To that end, we examine the behaviour for daily yields for 11 EMU countries (EMU-11), during the 2001-2010 period. In a first step, we decompose volatility in permanent and transitory components using Engel and Lee (1999)´s component-GARCH model. Results suggest that transitory shifts in debt market sentiment tend to be less important determinants of bond-yield volatility than shocks to the underlying fundamentals. In a second step, we develop a correlation and causality analysis that indicates the existence of two different groups of countries closed linked: core EMU countries and peripheral EMU countries. Finally, in a third step, we make a cluster analysis that further supports our results regarding the existence of two different groups of countries, with different positions regarding the stability of public finance.

Business Cycle Synchronization between Euro Area and Central and Eastern European Countries

We analyze the degree of co-movements in real macroeconomic aggregates across selected euro area and Central and Eastern European (CEE) countries applying a multi-factor model. Our results suggest that the evolution of the global European factor matches well the narrative of main economic events between 1995 and 2011, capturing among others the recession during the recent global financial and economic crisis. This factor plays a central role in explaining real output growth variability in euro area and is negligible in CEE countries. Furthermore, using Markov switching models and concordance indices, we shed light on an increase in business cycle synchronization, with the degree of concordance between country-specific and European business cycles being high.

The VARying Effect of Foreign Shocks in Central and Eastern Europe

This paper investigates the impact of international shocks – interest rate, commodity price and industrial production shocks – on key macroeconomic variables in ten Central and Eastern European (CEE) countries by using near-VAR models and monthly data from the early 1990s to 2009. In contrast to previous work, the empirical analysis takes explicit account of the possibility of (multiple) structural breaks in the underlying time series. We establish strong evidence of structural breaks, particularly along the years 2007 and 2008, suggesting the very relevant impact of the recent global crisis on CEE economies. Moreover, our results suggest that the way how countries react to world commodity price shocks is related to the underlying economic structure and the credibility of the monetary policy. We also find that some countries like Slovakia and Slovenia – already euro area members – react stronger to foreign industrial production shocks than other countries and that the responses to such shocks are strongly correlated for selected CEE countries. Nevertheless, our results also shed light on substantial differences in responses to foreign interest rate shocks that originate from the US or the euro area.

Growth dynamics, financial crises and exchange rate regimes

We empirically investigate the impact of financial crises and nominal exchange rate regime changes on growth dynamics. To that end, we estimate autoregressive models using panel data for 163 countries classified into four income groups during the period 1970–2011. Results suggest that financial crises significantly reduce short-run and long-run growth for high-income and lower-middle-income countries. In the case of the upper-middle-income countries, financial crises inflict a negative and statistically significant impact on short-run growth but only a marginally significant effect on long-run growth, while for lower-income countries they only have a short-run influence. As for the exchange rate regimes, we find that they only positively affect the short-run growth rate for lower-middle-income and low-income countries, not showing any significant impact on long-run growth rates.

Temporary ban on short positions and financial market volatility: evidence from the Madrid Stock Market

This article analyses the effect of the introduction of temporary ban on short positions in the Spanish market on the volatility of both the closing price and the trading volume of the underlying index as well as on the price of the main financial institutions. Using an econometric procedure for detecting structural breaks in the series, we study the period January 2000–December 2013. Our results do not suggest any significant impact on variance, neither on price nor on trade volume.

The euro and the volatility of exchange rates

This article attempts to determine whether or not the introduction of the euro affected the volatility of major bilateral exchange rates. To this end, we examine the exchange rate behaviour for a set of Organization for Economic Co-operation and Development (OECD) and non-OECD countries during the period 1993 to 2010. We find evidence of structural breaks in volatility across investigated variables and, although there is a high heterogeneity regarding the located dates, our results suggest a reduction in volatility associated with European Economic and Monetary Union (EMU) and worldwide shocks and an increase in volatility following shocks originating outside EMU. The decomposition of total volatility into its components suggests that the permanent component tracks total volatility reflecting the evolution of fundamental factors, and the transitory component responds largely to market fluctuations, rising during the detected structural breaks.

Structural Breaks in Volatility: Evidence from the OECD Real Exchange Rates

This paper analyses whether volatility changes in the bilateral and effective real exchange rates of the OECD industrial countries are associated with a specific nominal exchange rate regime. To that end, we examine the real exchange rate behaviour during the 1960-2003 period, therefore covering both the Bretton Woods system of fixed exchange rates and adoption of generalised floating exchange rates from 1973. We make use of an econometric methodology based on the Hansen (1997)s approximation to the p-values of the supreme, exponential and average statistics developed by Andrews (1993) and Andrews and Ploberger (1994). This methodology allows us to obtain a profile of p-values and to delimit periods of stability and instability in the variance of real exchange rates. Results suggest that there is evidence in favour of the non-neutrality of nominal exchange rate regime regarding real exchange rate volatility.

Nominal and real exchange rate co-movements

This paper investigates the existence of common movements between nominal and real exchange rates across different countries in three regions - North America, Western Europe, and Central and Eastern Europe - by using the multi-factor model. It also examines the role of macroeconomic fundamentals (i.e., prices, money and output) in order to explain the variance of the exchange rate global factor. The findings suggest the existence of co-movements among exchange rates. The exchange rate global factor seems to play a central role in explaining exchange rate variability in Western Europe, whereas regional and country-specific factors are the most important ones in North America and Central and Eastern Europe, respectively. Finally, the paper shows empirical evidence in favour of the connection between exchange rate global factor variability and macroeconomic fundamentals. Moreover, the importance of fundamentals has increased in the recent global crisis.

Real exchange rate volatility, financial crises and exchange rate regimes

This article examines real exchange rate (RER) volatility in 80 countries around the world, during the period 1970 to 2011. Two main questions are raised: are structural breaks in RER volatility related to changes in exchange rate regimes or financial crises? And do these two events affect the permanent and transitory components of RER volatility? To answer these, we employ two complementary procedures that consist in detecting structural breaks in the RER series and decomposing volatility into its permanent and transitory components. Our results suggest that structural breaks in RER volatility coincidence with financial crises and certain changes in nominal exchange rate regimes. Moreover, our findings confirm that RER volatility does increase with the global financial crises and detect that the more flexible the exchange rate regime, the higher the volatility of the RER using a de facto exchange rate classification.