Peter Benczur

Economic Fluctuations in Central and Eastern Europe. The Facts

This article provides a detailed empirical analysis of quarterly frequency dynamics in macroeconomic aggregates in 12 countries of Central and Eastern Europe (CEE). It shows that business fluctuations in CEE countries are, in general, more pronounced than in developed ones, and are of similar size as in other emerging market economies. Private consumption is particularly volatile. Relative to major developed economies government spending is dominantly procyclical, and net exports are strongly countercyclical. The most frequent country outliers are the high inflation countries of Bulgaria, Romania and Russia, especially in labour market, price and exchange rate variables. Excluding these countries from the sample makes many of the observed patterns in cyclical dynamics more homogenous, and broadly similar to ones established in developed economies.

Income Taxation, Transfers and Labour Supply at the Extensive Margin

This paper estimates the effect of income taxation and transfers on labour supply at the extensive margin, i.e., the labour force participation. We extend existing structural form methodologies by considering the effect of both taxes and transfers. Non-labour income contains the (hypothetical) transfer amount someone gets when out of work, while the wage is replaced by the difference between net wages and the amount of lost transfers due to taking up a job (gains to work). To incorporate these components of the budget set, we employ a detailed tax-benefit model. Using data from the Hungarian Household Budget Survey (HKF), we find that participation probabilities are strongly influenced by transfers and the gains to work, particularly for low-skill groups and the elderly. Moreover, the same change in the net wage leads to a much larger change in the gains to work for low earners, making them even more responsive to wages and taxation. Overall, we find that a single equation can capture a large heterogeneity of individual responsiveness to taxes and transfers. Our parametric estimates can be readily utilized in welfare evaluations, or microsimulation analyses of tax and transfer reforms.

Identifying Sovereign Bond Risks

This paper tries to identify the risks embodied in foreign-currency denominated sovereign bond spreads. It adopts an instrumental variables method , which attributes the explanatory power of fundamentals in a spread equation to their predictive power for observed risk realizations. Using historical data from developing countries, I find that it is possible to describe bond spreads by probabilities consistent with realizations: the reduced form explanatory power of fundamentals can be attributed to their influence on default and illiquidity predictions. There is, however, strong evidence that during currency crises, bond spreads increase more than do risk probabilities.

Business cycles around the globe: : some key facts

We document massive heterogeneity in basic cyclical patterns within groups of developed and emerging market economies. While we detect marked differences between developed and emerging countries as well, the distributions of key business cycle statistics tend to overlap across different country groups.

Interest Premium, Sudden Stop, and Adjustment in a Small Open Economy

This article studies the adjustment process of a small open economy to a sudden worsening of external conditions. The sudden stop is modeled by the use of a highly nonlinear specification that captures credit constraints in a convenient way. The advantage of this approach is that the effects of the shock become highly conditional on the external debt position of the economy. A two-sector model with money-in-the-utility is adopted, thereby making it possible to study sectoral asymmetries in the adjustment process, and also the role of currency mismatch. The model is calibrated to the behavior of the Hungarian economy in the 2000s, and its crisis experience in 2008–11 in particular. Four counterfactuals are calculated: two with different exchange rate policies (a more flexible float and a perfect peg), and both of these policy regimes with smaller initial indebtedness. Overall, the model is able to fit the movements of key aggregate and sectoral macroeconomic variables after the crisis by producing a large and protracted deleveraging process. It also offers a meaningful quantification of the policy tradeoff between facilitating the real adjustment by letting the currency depreciate and protecting consumption expenditures by limiting the adverse effect of exchange rate movements on household balance sheets.

Determinants of Spreads on Sovereign Bank Loans: The Role of Credit History

This paper is an empirical investigation into the role of credit history in determining the spread on sovereign bank loans. It employs an error-in-variables approach used in rational-expectations-macro-econometrics to set up a structural model that links sovereign loan spreads to realized repayment behavior. Unlike the existing empirical literature, its instrumental variables method allows for distinguishing a direct influence of past repayment problems (a ”pure reputation” effect) from one that goes through increased default probabilities. Using developing country data from the period 1973-1981 and constructing continuous variables for credit history, we find that past default is a significant determinant of the spread, even after including country fixed effects. Moreover, its reduced-form effect is very similar to its structural form effect, indicating that most of the influence of past repayment problems is through the reputation channel. Overall, past and predicted future default are substantial determinants of sovereign bank loan spreads.