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Current Account and REER misalignments in Central
Eastern EU Countries: an update using the
Macroeconomic Balance approach...
Motivation (1)
Question Why is an assessment of REERs and CAs important in the
new EU member states ?
CA imbalances = impo...
Motivation (1)
IMF, WEO Database, October 2016
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 3 / 45
Motivation (2)
REER = provides an assessment of a country’s external
competitiveness and key role in external adjustment p...
Motivation (2)
Eurostat, REER-CPI 37 partners, data March 2017
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03...
This paper
Aim of the paper:
Following the standard IMF CGER –> “Macroeconomic Balance” (MB)
approach as in Lee et al. (20...
This paper
Aim of the paper:
Following the standard IMF CGER –> “Macroeconomic Balance” (MB)
approach as in Lee et al. (20...
This paper (2)
Contribution to the literature:
1 It considers speci…cally the CEECs as an overall group using data
1994-20...
Main …ndings
The estimated coe¢ cients are in line with the expectations;
Mariarosaria Comunale (Bank of Lithuania) CA IN ...
Main …ndings
The estimated coe¢ cients are in line with the expectations;
Some global factors like shocks in oil prices or...
Main …ndings
The estimated coe¢ cients are in line with the expectations;
Some global factors like shocks in oil prices or...
Main …ndings
The estimated coe¢ cients are in line with the expectations;
Some global factors like shocks in oil prices or...
Main …ndings
The estimated coe¢ cients are in line with the expectations;
Some global factors like shocks in oil prices or...
Overview of the presentation
1 Literature review
2 Methodology: empirical methodology
3 Diagnostics and estimation strateg...
Literature review
REER equilibrium values:
Maeso-Fernandez et al. (2002) - main ones are: BEER (based on
REER det: Comunal...
Methodology: empirical methodology - STEPS
1) Estimating the coe¢ cients βs of fundamentals (X) of the CA:
CAi,t = β0
i Xi...
Methodology: empirical methodology
2) Computing the CA norm (=equilibrium value for CA) we need the
XT +H values = values ...
Methodology: empirical methodology
4) Then, in order to have the REER misalignments we need a measure of
CA elasticity εCA...
Methodology: empirical methodology
4) Then, in order to have the REER misalignments we need a measure of
CA elasticity εCA...
Methodology: empirical methodology
5) Ultimately, the REER misalignments are given as the ratio of CA gap
and the elastici...
Data
Period from 1994–2012 at annual frequency for 11 EU new member
states (Croatia is included);
Mariarosaria Comunale (B...
Data
Period from 1994–2012 at annual frequency for 11 EU new member
states (Croatia is included);
Y= current account over ...
Data
Period from 1994–2012 at annual frequency for 11 EU new member
states (Croatia is included);
Y= current account over ...
Data
Period from 1994–2012 at annual frequency for 11 EU new member
states (Croatia is included);
Y= current account over ...
Data
Period from 1994–2012 at annual frequency for 11 EU new member
states (Croatia is included);
Y= current account over ...
Data
Period from 1994–2012 at annual frequency for 11 EU new member
states (Croatia is included);
Y= current account over ...
Diagnostics and estimation strategy (1)
1. STATIC SETUP
Presence of Unit Roots (Im-Pesaran-Shin (2003) test and CIPS test)...
Diagnostics and estimation strategy (2)
2. DYNAMIC SETUP In our opinion adding a lagged value of the
explanatory variable ...
Expected results (1)
Initial NFA - depends
Countries with negative NFA are expected to improve the CA position to preserve...
Expected results (2)
Oil balance – depends
Depends if importers or exporters. Importers: declining other imports =positive...
Results (1) : baseline with FE and POLS (corrected for
CSD) - data until 2012
Mariarosaria Comunale (Bank of Lithuania) CA...
Results (2) : CA misalignments without/with FDIs
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 22 / 45
(*) CA norms 2012 vs. 2007
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 23 / 45
Results (2c) : factor analysis for the Baltic States -
2004-2007 ( "boom period")
Mariarosaria Comunale (Bank of Lithuania...
Results (2c) : factor analysis for the Baltic States -
2008-2012 ( "crisis period")
Mariarosaria Comunale (Bank of Lithuan...
Results (3) : REER misalignments without/with FDIs
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 26 / 45
Results (4) : determinants by using CCEMG (dynamic +
global factors)
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs...
Results (ext) : results with di¤erent ‡ows and more
demographics- data until 2014
From Comunale (2016) "A closer look at E...
Results (ext) : results with di¤erent ‡ows and more
demographics- data until 2014
From Comunale (2016) "A closer look at E...
Conclusions and policy implications (1)
The estimated coe¢ cients are in line with the expectations;
Mariarosaria Comunale...
Conclusions and policy implications (1)
The estimated coe¢ cients are in line with the expectations;
Some global factors l...
Conclusions and policy implications (1)
The estimated coe¢ cients are in line with the expectations;
Some global factors l...
Conclusions and policy implications (1)
The estimated coe¢ cients are in line with the expectations;
Some global factors l...
Conclusions and policy implications (1)
The estimated coe¢ cients are in line with the expectations;
Some global factors l...
Conclusions and policy implications (2)
The main policy implication involves the future behaviour.
Are further actions to ...
Interaction between the misalignments in the CA, the
REER and the cycle
- Bayesian panel VAR: CAmis (as here), REERmis (BE...
Interaction between the misalignments in the CA, the
REER and the cycle
- Dynamic factor model
Mariarosaria Comunale (Bank...
NEXT STEPS/IDEAS
1 Extend the sample to 2015-6;
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 34 / 45
NEXT STEPS/IDEAS
1 Extend the sample to 2015-6;
2 Applying the framework of Comunale and Hessel (2014) to have the
actual ...
NEXT STEPS/IDEAS
1 Extend the sample to 2015-6;
2 Applying the framework of Comunale and Hessel (2014) to have the
actual ...
NEXT STEPS/IDEAS
1 Extend the sample to 2015-6;
2 Applying the framework of Comunale and Hessel (2014) to have the
actual ...
NEXT STEPS/IDEAS
1 Extend the sample to 2015-6;
2 Applying the framework of Comunale and Hessel (2014) to have the
actual ...
3. Mine v. CGER v. EBA-lite for CA norms and gaps
My
coefficients
with Medina
My
coefficients
with 3 flows
My
coefficients...
Reserve slide (4) : EBA-lite (2016)
Main di¤erences with my approach:
- homogeneous coe¢ cients; no CSD; variables added w...
Reserve slide (5) : EBA-lite (2016)
- 150 countries, data 1995-2013, estimated by using two-stage
GMM, no FE.
- Di¤ wrt EB...
4. Comparison w.r.t. EU candidates
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 38 / 45
5. Comparison FEER v. BEER misalignments
BEER (Comunale, 2017 JIMF) FEER
Mariarosaria Comunale (Bank of Lithuania) CA IN C...
Thank you for your attention!
e-mail to: mariarosaria.comunale@gmail.com
mcomunale@lb.lt
website: https://sites.google.com...
Reserve slide (1) : determinants by using GM-FMOLS
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 41 / 45
Reserve slide (2) : EBA (2013)
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 42 / 45
Reserve slide (3) : EBA (2013)
Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 43 / 45
Reserve slide (4) : EBA-lite (2016)
Main di¤erences with my approach:
- homogeneous coe¢ cients; no CSD; variables added w...
Reserve slide (5) : EBA-lite (2016)
- 150 countries, data 1995-2013, estimated by using two-stage
GMM, no FE.
- Di¤ wrt EB...
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Mariarosaria Comunale. Current Account and REER misalignments in Central Eastern EU Countries: an update using the Macroeconomic Balance approach

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Bank of Lithuania
30.03.2017 - Eesti Pank Seminar, Tallinn

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Mariarosaria Comunale. Current Account and REER misalignments in Central Eastern EU Countries: an update using the Macroeconomic Balance approach

  1. 1. Current Account and REER misalignments in Central Eastern EU Countries: an update using the Macroeconomic Balance approach 1 Mariarosaria Comunale Bank of Lithuania 30.03.2017 - Eesti Pank Seminar, Tallinn 1The conclusions expressed in this paper are those of the author and do not necessarily represent the o¢ cial views of the Bank of Lithuania. Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 1 / 45
  2. 2. Motivation (1) Question Why is an assessment of REERs and CAs important in the new EU member states ? CA imbalances = important factor for emergence of bubbles and the transmission of …nancial crisis internationally (Ca’Zorzi et al, 2012) and can also signal elevated macroeconomic and …nancial stresses (Obstfeld, 2012); Huge CA changes in CEECs in the last 20 years; It is worth examining the CA norms (as equilibrium CAs), based on the CA fundamentals, to judge the CA in a medium-run perspective (vs ad-hoc procedures). Investigating if the CA are close to the country-speci…c and time-varying equilibrium values can help one determine the future adjustment needs and possible trajectories of fundamentals. Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 2 / 45
  3. 3. Motivation (1) IMF, WEO Database, October 2016 Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 3 / 45
  4. 4. Motivation (2) REER = provides an assessment of a country’s external competitiveness and key role in external adjustment process in an integrated world (Lee et al, 2008); In the context of EMU is relevant to interpret the competitiveness di¤erentials across members having the same currency or in order to determine the appropriate entry rate; Di¤erent fundamentals and misalignments in this rate can in‡uence the e¤ectiveness of the common policies and the integration process; Di¤erent trends over time; Which is the REER that allows the CA to go back to equilibrium in the medium-run? Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 4 / 45
  5. 5. Motivation (2) Eurostat, REER-CPI 37 partners, data March 2017 Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 5 / 45
  6. 6. This paper Aim of the paper: Following the standard IMF CGER –> “Macroeconomic Balance” (MB) approach as in Lee et al. (2008) We conduct an assessment of the current account position …rstly and than of price competitiveness (REERs) of the CEECs. Equilibrium value of the CA = based on CA fundamentals (included exchange rate regimes, foreign capital ‡ows and global factors); Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 6 / 45
  7. 7. This paper Aim of the paper: Following the standard IMF CGER –> “Macroeconomic Balance” (MB) approach as in Lee et al. (2008) We conduct an assessment of the current account position …rstly and than of price competitiveness (REERs) of the CEECs. Equilibrium value of the CA = based on CA fundamentals (included exchange rate regimes, foreign capital ‡ows and global factors); Equilibrium value of the REER (FEER) = as the rate which closes the gap between equilibrium CA and the projected CA value in the medium-long run (IMF WEO) = REER that allows the CA to go back to equilibrium in the medium-run Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 6 / 45
  8. 8. This paper (2) Contribution to the literature: 1 It considers speci…cally the CEECs as an overall group using data 1994-2012 (update ongoing) –> more precise estimations of the coe¢ cients of the determinants and CA elasticities (for REER misalignments) than in the IMF CGER case; 2 It uses an heterogeneous panel setup (both in the static and in the dynamic model), which takes into account the di¤erences in coe¢ cients among the EU members & it is corrected for Cross Sectional Dependence (CSD); 3 We provide an analysis of the role of exchange rate regimes, di¤erent types of foreign capital ‡ows and global factors as determinants of the CA. FDIs are used to compute the misalignments as in Medina et al. (2010); 4 The estimates –> more precise than IMF = taylored for CEECs! Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 7 / 45
  9. 9. Main …ndings The estimated coe¢ cients are in line with the expectations; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 8 / 45
  10. 10. Main …ndings The estimated coe¢ cients are in line with the expectations; Some global factors like shocks in oil prices or in oil supply might have played a role in worsening the CA balance of the CEECs; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 8 / 45
  11. 11. Main …ndings The estimated coe¢ cients are in line with the expectations; Some global factors like shocks in oil prices or in oil supply might have played a role in worsening the CA balance of the CEECs; Having a pegged exchange rate regime (or being part of the euro zone) a¤ects the CA positively; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 8 / 45
  12. 12. Main …ndings The estimated coe¢ cients are in line with the expectations; Some global factors like shocks in oil prices or in oil supply might have played a role in worsening the CA balance of the CEECs; Having a pegged exchange rate regime (or being part of the euro zone) a¤ects the CA positively; The REERs behave in line with the CA gaps, which show a clear cyclical behaviour; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 8 / 45
  13. 13. Main …ndings The estimated coe¢ cients are in line with the expectations; Some global factors like shocks in oil prices or in oil supply might have played a role in worsening the CA balance of the CEECs; Having a pegged exchange rate regime (or being part of the euro zone) a¤ects the CA positively; The REERs behave in line with the CA gaps, which show a clear cyclical behaviour; When the FDIs are introduced as a determinant for these countries, the misalignments are larger, in the boom periods (positive misalignments); while the misalignments are smaller during the crisis (negative misalignments). Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 8 / 45
  14. 14. Overview of the presentation 1 Literature review 2 Methodology: empirical methodology 3 Diagnostics and estimation strategy 4 Expected results 5 Our results 6 Conclusions and policy implications Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 9 / 45
  15. 15. Literature review REER equilibrium values: Maeso-Fernandez et al. (2002) - main ones are: BEER (based on REER det: Comunale, 2015, 2017) and FEER (indirect comes from CA determinants) Macroeconomic balance (MB) approach/FEER: CA determinants in MB: Isard and Faruqee (1998), Lee et al. (2008) and Medina et al. (2010); CA determinants in broad literature: Ca’Zorzi et al. (2012); Bussiere et al. (2010); Chinn and Prasad (2003); Calderon et al. (2002). CA elasticities (to compute eq. REER): Isard and Faruqee (1998), Comunale and Hessel (2014); Case studies: Transition & CEE countries: Égert and Lahréche-Révil (2003); Rahman (2008); Latvia: Ajevskis et al. (2012, 2015); Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 10 / 45
  16. 16. Methodology: empirical methodology - STEPS 1) Estimating the coe¢ cients βs of fundamentals (X) of the CA: CAi,t = β0 i Xi,t + γi dummyi,t + εi,t Following the literature, the X are: the relative …scal balance, the relative dependency ratio and the relative population growth, the initial NFA, the oil balance, a relative income measure (GDP per capita PPP over US), the relative real GDP per capita growth and the net FDI ‡ows/GDP (Medina et al., 2010). dummy: 1) for the crisis/post-crisis period 2008-2012; 2) for the pegged regimes (de facto, time-varying). Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 11 / 45
  17. 17. Methodology: empirical methodology 2) Computing the CA norm (=equilibrium value for CA) we need the XT +H values = values of the fundamentals 7 years ahead (for 2012 is 2019 and so backwards, H=7) including the variables in relative terms. CAnormi,t = bβ 0 i XT +H 3) We have the CA misalignments as (CA norm - CA based on projected values from IMF WEO) –> we want to bring back the CA to equilibrium in the MEDIUM-RUN CAmisi,t = CAnormi,t CAunderlyingi,T +H Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 12 / 45
  18. 18. Methodology: empirical methodology 4) Then, in order to have the REER misalignments we need a measure of CA elasticity εCA. εCA = (εX X GDP ) [(εM 1) M GDP ] where εX and are εM the elasticities respectively of exports X and imports M (vis-á-vis the rest of the world) to the REER. These values are taken from Comunale and Hessel (2014) and are based on euro zone data in the period 1994-2012 (heterogeneous panel ECM for X, M with regressors: REER, foreign demand and …nancial cycles) –> we believe they are better than the one used by IMF from Isard and Faruqee (1998) which consider all the countries together (homogeneous coe¤) and use old data. –> next update: using elasticity based on CEECs only –> for the time being in the euro area some CEECs are already represented Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 13 / 45
  19. 19. Methodology: empirical methodology 4) Then, in order to have the REER misalignments we need a measure of CA elasticity εCA = di¤erence wrt IMF Comunale and Hessel (2014) Isard, Lee, Geis (1998) CA ELASTICITY CA ELASTICITY 2012 avg 2012 avg Bulgaria 0.51 0.49 0.41 0.34 Croatia 0.35 0.38 0.18 0.17 Czech Republic 0.47 0.42 0.62 0.46 Estonia 0.56 0.59 0.54 0.46 Hungary 0.49 0.44 0.39 0.27 Latvia 0.57 0.48 0.55 0.37 Lithuania 0.58 0.51 0.35 0.29 Poland 0.29 0.27 0.29 0.23 Romania 0.33 0.33 0.27 0.23 Slovakia 0.58 0.55 0.66 0.54 Slovenia 0.50 0.43 0.56 0.43 Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 14 / 45
  20. 20. Methodology: empirical methodology 5) Ultimately, the REER misalignments are given as the ratio of CA gap and the elasticity of CA. The equilibrium REER (FEER) will be simply the actual REER minus the REER misalignments. REERmisi,t = CAmis εCA FEERi,t = REERi,t REERmisi,t REERmisi,t = REERi,t FEERi,t Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 15 / 45
  21. 21. Data Period from 1994–2012 at annual frequency for 11 EU new member states (Croatia is included); Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 16 / 45
  22. 22. Data Period from 1994–2012 at annual frequency for 11 EU new member states (Croatia is included); Y= current account over GDP from IMF WEO; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 16 / 45
  23. 23. Data Period from 1994–2012 at annual frequency for 11 EU new member states (Croatia is included); Y= current account over GDP from IMF WEO; REER = Eurostat, CPI de‡ated, 37 partners; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 16 / 45
  24. 24. Data Period from 1994–2012 at annual frequency for 11 EU new member states (Croatia is included); Y= current account over GDP from IMF WEO; REER = Eurostat, CPI de‡ated, 37 partners; NFA = EWN update by Lane and Milesi-Ferretti (2007); Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 16 / 45
  25. 25. Data Period from 1994–2012 at annual frequency for 11 EU new member states (Croatia is included); Y= current account over GDP from IMF WEO; REER = Eurostat, CPI de‡ated, 37 partners; NFA = EWN update by Lane and Milesi-Ferretti (2007); Other regressors: IMF WEO, WB WDI and UNDESA (demographics); Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 16 / 45
  26. 26. Data Period from 1994–2012 at annual frequency for 11 EU new member states (Croatia is included); Y= current account over GDP from IMF WEO; REER = Eurostat, CPI de‡ated, 37 partners; NFA = EWN update by Lane and Milesi-Ferretti (2007); Other regressors: IMF WEO, WB WDI and UNDESA (demographics); The …scal balance, old-age dependency ratio, population growth, real GDP per capita growth and GDP per capita PPP (taken as the ratio w.r.t. the US values) are used in relative terms with the same time-varying weights applied for the REER (also in case of projected values). Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 16 / 45
  27. 27. Diagnostics and estimation strategy (1) 1. STATIC SETUP Presence of Unit Roots (Im-Pesaran-Shin (2003) test and CIPS test) = some series are not-stationary (relative old-age dependency ratio, …scal balance/GDP and real GDP per capita growth) (**) Cross-sectional dependence (Pesaran (2004) test) = CSD =) In case of stationarity and CSD in a static framework: FE or Pooled OLS (with Driscoll-Kraay correction) =) similar to IMF CGER, Medina et al. (2010) and Lee et al. (2008) estimators but s.e. corrected for CSD –> comparison available. (**) Given the presence of some non-stationary series and of cointegration (Pedroni test): GM-FMOLS methodology have also been provided (ALTERNATIVE) Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 17 / 45
  28. 28. Diagnostics and estimation strategy (2) 2. DYNAMIC SETUP In our opinion adding a lagged value of the explanatory variable in the study of the determinants of the variable itself to be used for the norm, it would be not correct. However, this can add some interesting features in the analysis. As additional analysis: CCEMG, which deals with CSD in dynamic panels and allows for heterogeneous coe¢ cients (Pesaran and Tosetti, 2011)–> we can also check for the role of global factors, linked to our determinants Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 18 / 45
  29. 29. Expected results (1) Initial NFA - depends Countries with negative NFA are expected to improve the CA position to preserve long-term solvency, so the sign should be negative (Lane and Milesi-Ferretti, 2004). On the other hand, highly indebted countries typically record negative income ‡ows, which weigh negatively on the CA (Ca’Zorzi et al., 2012) FDI/GDP < 0 [Medina et al., 2010] FDIs are more stable investments and less prone to sudden stops. If FDIs are directed to …nance the CA de…cits, this brings a declining in CA over time, because this method of …nancing is less uncertain Fiscal balance/GDP > 0 Surplus (de…cit) increases (decreases) savings, except. full Ricardian equivalence = private savings fully o¤set changes in public savings = no link Old-age dependency ratio and population growth < 0 Less savings in case of high % of old people or population growth Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 19 / 45
  30. 30. Expected results (2) Oil balance – depends Depends if importers or exporters. Importers: declining other imports =positive (Medina et al., 2010). In the literature this variable is also used to proxy the sensitivity of a country to changes in oil prices (Ca’Zorzi et al., 2012). Relative output growth (real GDP per capita growth) < 0 Captures relative economic growth respect to the partners = stronger growth is often linked with a decline in CA –because of higher potential, the country can save less today Relative income (GDP per capita PPP over US) > 0 As they approach the income level of advanced economies = convergence, CA should improve A crisis/post crisis dummy (common factor, years from 2008 to 2012) > 0 Macroeconomic crisis can decrease the availability of international …nancing and increase temporarily the CA Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 20 / 45
  31. 31. Results (1) : baseline with FE and POLS (corrected for CSD) - data until 2012 Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 21 / 45
  32. 32. Results (2) : CA misalignments without/with FDIs Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 22 / 45
  33. 33. (*) CA norms 2012 vs. 2007 Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 23 / 45
  34. 34. Results (2c) : factor analysis for the Baltic States - 2004-2007 ( "boom period") Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 24 / 45
  35. 35. Results (2c) : factor analysis for the Baltic States - 2008-2012 ( "crisis period") Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 25 / 45
  36. 36. Results (3) : REER misalignments without/with FDIs Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 26 / 45
  37. 37. Results (4) : determinants by using CCEMG (dynamic + global factors) Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 27 / 45
  38. 38. Results (ext) : results with di¤erent ‡ows and more demographics- data until 2014 From Comunale (2016) "A closer look at EU current accounts" Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 28 / 45
  39. 39. Results (ext) : results with di¤erent ‡ows and more demographics- data until 2014 From Comunale (2016) "A closer look at EU current accounts" (sub-groups in EU) Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 29 / 45
  40. 40. Conclusions and policy implications (1) The estimated coe¢ cients are in line with the expectations; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 30 / 45
  41. 41. Conclusions and policy implications (1) The estimated coe¢ cients are in line with the expectations; Some global factors like shocks in oil prices or in oil supply might have played a role in worsening the CA balance of the CEECs; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 30 / 45
  42. 42. Conclusions and policy implications (1) The estimated coe¢ cients are in line with the expectations; Some global factors like shocks in oil prices or in oil supply might have played a role in worsening the CA balance of the CEECs; Having a pegged exchange rate regime (or being part of the euro zone) a¤ects the CA positively; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 30 / 45
  43. 43. Conclusions and policy implications (1) The estimated coe¢ cients are in line with the expectations; Some global factors like shocks in oil prices or in oil supply might have played a role in worsening the CA balance of the CEECs; Having a pegged exchange rate regime (or being part of the euro zone) a¤ects the CA positively; The REERs behave in line with the CA gaps, which show a clear cyclical behaviour; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 30 / 45
  44. 44. Conclusions and policy implications (1) The estimated coe¢ cients are in line with the expectations; Some global factors like shocks in oil prices or in oil supply might have played a role in worsening the CA balance of the CEECs; Having a pegged exchange rate regime (or being part of the euro zone) a¤ects the CA positively; The REERs behave in line with the CA gaps, which show a clear cyclical behaviour; When the FDIs are introduced as a determinant for these countries, the misalignments are larger, in the boom periods (positive misalignments); while the misalignments are smaller during the crisis (negative misalignments). Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 30 / 45
  45. 45. Conclusions and policy implications (2) The main policy implication involves the future behaviour. Are further actions to rebalance the CAs needed? A balanced CA (as close to CA=0 as possible) 6= equilibrium CA (*) which also changes over time Are the REER and its components the right instruments or/and may be the role of the …nancial cycle as important? We have an analysis applying a closer interaction between the misalignments in the CA, the REER and the cyclical components (Comunale, 2017 ECB WP) –> here some results Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 31 / 45
  46. 46. Interaction between the misalignments in the CA, the REER and the cycle - Bayesian panel VAR: CAmis (as here), REERmis (BEER as Comunale, 2017 JIMF), …nancial cycle: Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 32 / 45
  47. 47. Interaction between the misalignments in the CA, the REER and the cycle - Dynamic factor model Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 33 / 45
  48. 48. NEXT STEPS/IDEAS 1 Extend the sample to 2015-6; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 34 / 45
  49. 49. NEXT STEPS/IDEAS 1 Extend the sample to 2015-6; 2 Applying the framework of Comunale and Hessel (2014) to have the actual trade elasticities for CEECs and for the considered period; Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 34 / 45
  50. 50. NEXT STEPS/IDEAS 1 Extend the sample to 2015-6; 2 Applying the framework of Comunale and Hessel (2014) to have the actual trade elasticities for CEECs and for the considered period; 3 Comparison with EBA/EBA-lite (on going - here some results); Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 34 / 45
  51. 51. NEXT STEPS/IDEAS 1 Extend the sample to 2015-6; 2 Applying the framework of Comunale and Hessel (2014) to have the actual trade elasticities for CEECs and for the considered period; 3 Comparison with EBA/EBA-lite (on going - here some results); 4 Comparison with candidate member state (on going - here some results) - separated paper? Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 34 / 45
  52. 52. NEXT STEPS/IDEAS 1 Extend the sample to 2015-6; 2 Applying the framework of Comunale and Hessel (2014) to have the actual trade elasticities for CEECs and for the considered period; 3 Comparison with EBA/EBA-lite (on going - here some results); 4 Comparison with candidate member state (on going - here some results) - separated paper? 5 Comparison for the REER, with the BEER approach with ‡ows (as in Comunale, 2015, 2017) - separated paper? Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 34 / 45
  53. 53. 3. Mine v. CGER v. EBA-lite for CA norms and gaps My coefficients with Medina My coefficients with 3 flows My coefficients with Medina My coefficients with 3 flows andmy data (upto 2012) andmy data (upto 2014) andmy data (upto 2012) andmy data (upto 2014) Bulgaria Peg -3.4 -3.9 -5.5 (EBA 2016) -0.2 1.9 6.8 (EBA 2016) Croatia Peg -3.4 -5.6 4.2 (EBA 2016) -1.4 4.7 3.7 (CGER 2015); -1.0 (EBA 2016) Czech Rep Float -3.6 -6.2 ? -2.7 5.5 1.0 (CGER 2015); 2.0 (EBA 2016) Estonia Peg 0.7 -1.3 -1.3 (CGER 2014); -4.1 (EBA 2016) 0.6 0.5 -0.1 (CGER 2014); 3.6 (EBA 2016) Hungary Float -0.6 -0.3 ? 0.9 1.5 ? Latvia Peg -3.8 -3.3 -4.8 (EBA 2016) -1.8 0.9 3.6 (EBA 2016) Lithuania Peg -1.8 -4.2 -4.3 (EBA 2016) 0.0 1.8 2.3 (EBA 2016) Poland Float -2.1 -6.8 ? 1.4 3.4 ? Romania Float -1.4 -5.1 -4.1 (CGER 2015); -3.0 (EBA 2016) 1.9 1.5 -0.8 (CGER 2015); 2.0 (EBA 2016) Slovakia Peg -1.2 -4.8 -2.6 (EBA 2015) -3.6 7.0 2.1 (EBA 2015) Slovenia Peg -2.1 -3.4 -1.7 (CGER 2014); -1.4 (EBA 2016) -3.7 8.0 7.5 (CGER 2014); [7.5, 9.5] (EBA 2016) CA GAP CA GAP CA GAP Art IVREGIME Art IV CA norm CA norm CA norm Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 35 / 45
  54. 54. Reserve slide (4) : EBA-lite (2016) Main di¤erences with my approach: - homogeneous coe¢ cients; no CSD; variables added without theoretical/empirical framework (mine follows Ca Zorzi et al, 2012); present values of CA (not projected). Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 36 / 45
  55. 55. Reserve slide (5) : EBA-lite (2016) - 150 countries, data 1995-2013, estimated by using two-stage GMM, no FE. - Di¤ wrt EBA (2013): Excluded: Reserve currency status; VIX/VXO index; Public health spending. Included: Aid and remittances Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 37 / 45
  56. 56. 4. Comparison w.r.t. EU candidates Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 38 / 45
  57. 57. 5. Comparison FEER v. BEER misalignments BEER (Comunale, 2017 JIMF) FEER Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 39 / 45
  58. 58. Thank you for your attention! e-mail to: mariarosaria.comunale@gmail.com mcomunale@lb.lt website: https://sites.google.com/site/mariarosariacomunale/home Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 40 / 45
  59. 59. Reserve slide (1) : determinants by using GM-FMOLS Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 41 / 45
  60. 60. Reserve slide (2) : EBA (2013) Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 42 / 45
  61. 61. Reserve slide (3) : EBA (2013) Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 43 / 45
  62. 62. Reserve slide (4) : EBA-lite (2016) Main di¤erences with my approach: - homogeneous coe¢ cients; no CSD; variables added without theoretical/empirical framework (mine follows Ca Zorzi et al, 2012); present values of CA (not projected). Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 44 / 45
  63. 63. Reserve slide (5) : EBA-lite (2016) - 150 countries, data 1995-2013, estimated by using two-stage GMM, no FE. - Di¤ wrt EBA (2013): Excluded: Reserve currency status; VIX/VXO index; Public health spending. Included: Aid and remittances Mariarosaria Comunale (Bank of Lithuania) CA IN CEECs 30.03.2017 45 / 45

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