Browsing by Author "Fidrmuc, Jarko"

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  • Fidrmuc, Jarko; Korhonen, Iikka (2004)
    BOFIT Discussion Papers 20/2004
    Published in Journal of Comparative Economics, Vol.34, No.3 (2006), pp. 518-537
    We review the literature on business-cycle correlation between the euro area and Central and Eastern European countries (CEECs), a topic that has gained attention in recent years as new EU entrants prepare for participation in the monetary union.Our meta-analysis suggests several CEECs already have comparably high correlation with the euro area business cycle.We also find that estimation methodologies can have a significant effect on correlation coefficients.While central bankers are more conservative in their estimates, we find no evidence of a geographical bias in the studies.JEL-Numbers: C42, E32, F15, F31.Key words: monetary union, optimum currency area, business cycles, meta- analysis.
  • Campos, Nauro F.; Fidrmuc, Jarko; Korhonen, Iikka (2019)
    International Review of Financial Analysis January
    Published in Bank of Finland Research Discussion Papers 28/2017
    This paper offers a systematic evaluation of the evidence on the effects of currency unions on the synchronisation of economic activity. Focusing on Europe, we construct a database of about 3000 business cycles synchronisation coefficients including their design and estimation characteristics. We find that: (1) synchronisation increased from about 0.4 before the introduction of the euro in 1999 to 0.6 afterwards; (2) this increase occurred in both euro and non-euro countries (larger in former); and (3) there is evidence of country-specific publication bias.
  • Campos, Nauro F.; Fidrmuc, Jarko; Korhonen, Iikka (2017)
    Bank of Finland Research Discussion Papers 28/2017
    Published in International Review of Financial Analysis 61 ; January ; 2019 https://doi.org/10.1016/j.irfa.2018.11.012
    This paper offers a first systematic evaluation of the evidence on the effects of currency unions on the synchronisation of economic activity. Focusing on Europe, we construct a database of about 3,000 business cycle synchronisation coefficients as well as their design and estimation characteristics. We find that: (1) synchronisation increased from about 0.4 before the introduction of the euro in 1999 to 0.6 afterwards; (2) this increase occurred in both euro and non-euro countries (larger in former); (3) there is evidence of country-specific publication bias; (4) our difference-in-differences estimates suggest the euro accounted for approximately half of the observed increase in synchronisation.
  • Poměnková, Jitka; Fidrmuc, Jarko; Korhonen, Iikka (2014)
    BOFIT Discussion Papers 5/2014
    Published in Applied Economics Letters, Vol. 21, Issue 18, 2014 pp. 1309-1313 as "Wavelet Spectrum Analysis of Business Cycles of China and G7 Countries" .
    We employ a wavelet spectrum analysis to study globalization and business cycles in China and G7 countries. The co-movement synchronization between G7 countries and China is shown to have undergone frequent and large changes during our sample period. The co-movements for business cycle frequencies are generally different from those for other frequencies, and synchronization with China's business cycle differs as between G7 countries. In recent years Japan, Germany and Italy seem to have the closest synchronization at business-cycle frequency. We find a significant relationship between the time-varying wavelet measure of synchronization and trade only for business-cycle frequencies. The co-movements at longer frequencies are negatively related to trade, so that the overall co-movements and trade tend not to be significantly related. Keywords: Globalization, business cycles, synchronization, trade, wavelet analysis. JEL-Codes: E32, F15, F41.
  • Fidrmuc, Jarko; Korhonen, Iikka; Bátorová, Ivana (2008)
    BOFIT Discussion Papers 7/2008
    Published in CESifo Economic Studies, Vol. 59, 2/2013, 392-411
    We analyze the business cycles in China and in selected OECD countries between 1992 and 2006 using dynamic correlations. Nearly all OECD countries showpositive correlations of the very short-run developments which may correspond to intensive supplier linkages. However, dynamic correlations at the business cycle frequencies are negative. Countries facing a comparably longer history of intensive trading links tend to show slightly higher correlations of business cycles with China. Even though trade and financial flows do not really increase correlations of business cycles between China and OECD countries, they lower the degree of business cycle synchronization within the OECD area. JEL Classification: E32, F15, F41. Keywords: Business cycles, synchronization, trade, FDI, dynamic correlation.
  • Fidrmuc, Jarko; Fungáčová, Zuzana; Weill, Laurent (2015)
    BOFIT Discussion Papers 7/2015
    Published in Open Economies Review, Volume 26, Issue 3, April 2015: 479-496.
    ​The financial crisis has shown that the liquidity creation function of banks is critical for the economy. In this paper, we empirically investigate whether bank liquidity creation fosters economic growth in a large emerging market, Russia. We follow the methodology of Berger and Bouwman (2009) to measure bank liquidity creation using a rich and exhaustive dataset of Russian banks. We perform fixed effects and GMM estimations to examine the relation of liquidity creation to economic growth for Russian regions in the period 2004–2012. Our results suggest that bank liquidity creation fosters economic growth. This effect was not washed out by the financial crisis. Our conclusion thus supports a positive impact of financial development on economic growth in Russia.
  • Eller, Markus; Fidrmuc, Jarko; Fungáčová, Zuzana (2013)
    BOFIT Discussion Papers 13/2013
    Published in Regional Studies, Volume 50, 2016, Issue 11, p. 1849-1862
    This paper investigates the relationship between fiscal policy and output volatility in Russian regions between 2000 and 2009. System GMM estimation techniques are used to account for potential endogeneity between output volatility and fiscal developments. Our main finding is that fiscal activism, proxied by various measures of discretionary fiscal policy, contributes to output volatility and so induces macroeconomic instability at the regional level in Russia. This result corroborates previous studies using cross-country data. To reduce business cycle fluctuations, it would be necessary to curtail pro-cyclical fiscal activism at the regional level, e.g. via fiscal rules and sound institutions of fiscal federalism. JEL Codes: E32, E62, R11. Keywords: output volatility, automatic stabilizers, discretionary fiscal policy, dynamic panel models, Russia
  • Bask, Mikael; Fidrmuc, Jarko (2006)
    Bank of Finland Research Discussion Papers 10/2006
    Published in Open Economies Review, Volume 20, Issue 5, November 2009, Pages 589-605
    We present a model of exchange rates, which incorporates the monetary approach and technical trading, and we present the reduced form based on the minimal state variable solution, where both fundamentals and backward-looking term determine the spot exchange rates.Finally, we estimate the impact of the monetary fundamentals for a panel of Central and Eastern European countries (Czech Republic, Poland, Romania and Slovakia) in the second half of the 1990s as well as the complete model of exchange rate determination for daily data over the more recent free-floating period.Key words: foreign exchange market, fundamental analysis, panel cointegration, technical analysis JEL classification numbers: C23, F31, F36
  • Fidrmuc, Jarko; Korhonen, Iikka (Wiley, 2018)
    Pacific Economic Review 3
    Published in BOFIT Discussion Papers 6/2015.
    We review previous research on China's business cycle correlation with other economies applying meta‐analysis. We survey 71 papers analysing the different periods of Chinese economic development since the 1950s that were published in English or Chinese. We confirm that Pacific Rim economies in particular have relatively high business cycle correlation with China. It appears that many characteristics of the studies and authors influence the reported degree of business cycle synchronization. For instance, Chinese‐language papers report higher correlation coefficients. Despite this, we do not detect robust evidence for publication bias in the papers. Moreover, we show that the broad evidence does not confirm the popular decoupling hypothesis.
  • Fidrmuc, Jarko; Korhonen, Iikka (2015)
    BOFIT Discussion Papers 6/2015
    Published in Pacific Economic Review, 23, 3, 2018, 385-410
    We summarize previous research on China’s business cycle correlation with other countries with the help of meta-analysis techniques. We survey 71 related papers along with all the characteristics of the estimations as well as those of the authors. We confirm that especially Pacific Rim countries have relatively high business cycle correlation with China. However, it appears that many characteristics of the studies and authors do influence the reported degree of business cycle synchronization. For instance, Chinese-language papers report higher correlation coefficients. Despite of this, we do not detect a robust publication bias in the papers.
  • Fidrmuc, Jarko; Moroz, Serhiy; Reck, Fabian (2020)
    BOFIT Discussion Papers 25/2020
    Published in Empirica 48, 645-660 (2021)
    This paper analyzes the impact of ethnic heterogeneity and military conflict on the degree of regional consumption risk-sharing in Ukraine. Ethnicity and violent conflicts can influence risk-sharing e.g. through social capital, ethnic fractionalization, migration, and remittances. The sample consists of 25 Ukrainian oblasts and covers the highly volatile period from 2003 to 2016. Our results suggest that the degree of consumption risk-sharing is comparably high; between 70 and 80 percent on average. Moreover, consumption risk-sharing is significantly higher in the regions with a large Russian minority, which are enjoying special treatment by Russia. By contrast, the degree of financial development, as proxied by deposit and loan share in GRP, does not significantly affect the regional degree of consumption risk-sharing. Furthermore, we apply spatial models to control for spatial dependence across regions. Results are confirmed and it is shown that spatial correlation is important. Finally, we show that the recent geopolitical conflict in east Ukraine changed the regional degree of consumption risk-sharing.
  • Fidrmuc, Jarko; Korhonen, Iikka (2001)
    BOFIT Discussion Papers 14/2001
    Published in Economic Systems vol 27, no 3 (2003), pp. 313-334
    We assess the correlation of supply and demand shocks between the euro area, the EU accession countries and also the present EU countries.Shocks are recovered from estimated structural vector autoregressive models.We find that some advanced accession countries have quite high correlation with the euro area.However, even for many high income accession countries the degree of correlation remains low.Also, in the 90s many EU countries seemed to have much higher correlation with the core euro area countries than in previous decades.Continuing integration within the EU seems to have aligned business cycles of the countries as well. Keywords: optimal currency area, monetary union, EU enlargement JEL classification numbers: E32, F42
  • Fidrmuc, Jarko (2001)
    BOFIT Discussion Papers 8/2001
    Published in Contemporary Economic Policy vol. 22, no 1 (2004), pp. 1-12
    This paper tests an endogeneity hypothesis of optimum currency area (OCA) criteria (Frankel and Rose, 1998) on a cross-section of OECD countries between 1990 and 1999.The findings indicate that convergence of business cycles relates to intra-industry trade, but has no direct relation between business cycles and bilateral trade intensity.As far as intra-industry trade is positively correlated with trade intensities, this result confirms the OCA endogeneity hypothesis.The endogeneity of OCA linkage criteria implies extensive business cycle harmonization between CEECs and EU countries in the medium term.
  • Fidrmuc, Jarko; Korhonen, Iikka (2003)
    BOFIT Discussion Papers 6/2003
    Published in Comparative Economic Studies vol. 46 no 1 (2004), pp. 45-62 https://doi.org/10.1057/palgrave.ces.8100040
    We assess the correlation of supply and demand shocks between current countries in the euro area and EU accession candidates from 1993/1995 to 2002.Supply and demand shocks are recovered from estimated structural VAR models of output growth and inflation. Notably, the economic slowdown between 2000 and 2002 increased heterogeneity of business cycles between the euro area and acceding counties.We find that several acceding countries have a quite high correlation of underlying shocks with the euro area and conclude that continuing integration within the EU is likely to align the business cycles of these countries in a manner similar to the synchronisation of supply and demand shocks we document for the EU in the 1990s.JEL numbers E32, F42.Keywords: Optimum currency area, EU enlargement, structural VAR.
  • Fidrmuc, Jarko; Korhonen, Iikka (2009)
    BOFIT Discussion Papers 11/2009
    Published in Journal of Asian Economics, Volume 21, Issue 3, June 2010, Pages 293-303
    We analyze the transmission of global financial crisis to business cycles in China and India. The pattern of business cycles in emerging Asian economies generally displays a low degree of synchronization with the OECD countries, which is consistent with the decoupling hypothesis. By contrast, however, the current financial crisis has had a significant effect on economic developments in emerging Asian economies. Applying dynamic correlations, we find wide differences for different frequencies of cyclical development. More specifically, at business cycle frequencies, dynamic correlations are typically low or negative, but they are also influenced most by the global financial crisis. Finally, we find a significant link between trade ties and dynamic correlations of GDP growth rates in emerging Asian countries and OECD countries.
  • Backe, Peter; Fidrmuc, Jarko (2000)
    BOFIT Online 9/2000
    The paper examines the impact of the Russian crisis on five Central and Eastern European countries (the Czech Republic, Hungary, Poland, Slovakia, and Slovenia) in 1998 and 1999.The analysis starts by discussing trade effects and their impact on GDP developments.Subsequently, the focus turns to the financial channel.After a review of immediate and temporary financial contagion effects, the medium-term impact on real interest rates and its implications for investment, consumption and output are scrutinized.Finally, the paper appraises the policy measures that were taken and the policy discussions that unfolded against the backdrop of the Russian crisis.
  • Crespo Cuaresma, Jesús; Fidrmuc, Jarko; MacDonald, Ronald (2003)
    BOFIT Discussion Papers 14/2003
    Published in Economics of Transition vol 13, no 2 (2005), pp. 395-416
    A panel data set for six Central and Eastern European countries (the Czech Republic, Hungary, Poland, Romania, Slovakia and Slovenia) is used to estimate the monetary exchange rate model with panel cointegration methods, including the Pooled Mean Group estimator, the Fully Modified Least Square estimator and the Dynamic Least Square estimator.The monetary model is able to convincingly explain the long-run dynamics of exchange rates in CEECs, particularly when this is supplemented by a Balassa-Samuelson effect.We then use our long-run monetary estimates to compute equilibrium exchange rates.Finally, we discuss the implications for the accession of selected countries to the European Economic and Monetary Union.Keywords: Exchange rates, monetary model, panel unit root tests, panel cointegration, EMU JEL classification: C33, F31, F36
  • Dreger, Christian; Fidrmuc, Jarko; Kholodilin, Konstantin; Ulbricht, Dirk (2015)
    BOFIT Discussion Papers 25/2015
    Published in Journal of Comparative Economics, Vol. 44, Issue 2, May 2016, Pages 295–308 as Between the hammer and the anvil: The impact of economic sanctions and oil prices on Russia’s ruble
    The exchange rate fluctuations strongly affect the Russian economy, given its heavy dependence on foreign trade and investment. Since January 2014, the Ruble lost 50% of its value against the US Dollar. The fall of the currency started with the conflict between Russia and Ukraine. The impact of the conflict on Russia may have been amplified by sanctions imposed by Western countries. However, as Russia is heavily dependent on exports of natural re-sources, the oil price decline starting in Summer 2014 could be another factor behind the deterioration. By using high frequency data on nominal exchange and interest rates, oil prices, actual and unanticipated sanctions, we provide evidence on the driving forces of the Ruble exchange rate. The analysis is based on cointegrated VAR models, where fundamental long-run relationships are implicitly embedded. The results indicate that the bulk of the depreciation can be related to the decline of oil prices. In addition, unanticipated sanctions matter for the conditional volatility of the variables involved.