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Monetary aspects of short-term capital inflows in the Central European Countries

Mirdala, Rajmund (2010): Monetary aspects of short-term capital inflows in the Central European Countries. Published in: Journal of Applied Economic Sciences , Vol. 5, No. 4 (December 2010): pp. 342-358.

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Abstract

International capital flows represents one of the key aspect of the globalisation process and refers to the continuous relieving the cross-border capital allocation barriers reflecting in huge increase in the common financial connections among the countries during the last decades. Flows of the capital among the countries stimulated by increased investment opportunities, expected profits and better risk diversification generated many positive, symmetric and multiplicative effects. On the other hand it also increases the exposure of the countries to many negative and asynchronous defects that led economists to revaluate the overall effects of financial liberalization and dynamic increase in the international capital flows. Rigorous assessment of general effects related to short-term capital inflows requires a consideration of a wide variety of country specific assumptions and determinants. Real conditions affecting overall effects of short-term capital inflows have to be also considered in the view of (dis)equilibrium trends in the balance of payments. In the paper we analyze selected monetary aspects of short-term capital inflows in the Central European countries (Czech republic, Hungary, Poland, Slovak republic) in the period 1999-2010 using VAR (vector autoregression) approach. In order to meet this objective we estimate a vector VAR model identified by the Cholesky decomposition of innovations that allows us to identify structural shocks hitting the model. Impulse-response functions are computed in order to estimate the impact of short-term capital inflows on exchange rate, money stock, price level and current account. Ordering of the endogenous variables in the model is also considered allowing us to check the robustness of the empirical results.

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