EMU-Related News and Financial Markets in the Czech Republic, Hungary, and Poland
31 Pages Posted: 5 Sep 2008 Last revised: 20 May 2009
Date Written: February 25, 2009
We analyse the impact of news on five financial markets in the Czech Republic, Hungary and Poland using a newly constructed data set in a GARCH framework. Macroeconomic shocks (on GDP, inflation rate, current account and trade balance) are constructed as deviations from expected values. EMU-related political and fiscal news is captured as news dummies. Macroeconomic shocks significantly affect short-term interest rates and, to a lesser extent, other financial variables. Political and fiscal news has an impact on long-term bond yields and exchange rates. News displayed prominently in our media sources has a greater impact on financial markets than other news and, in addition, the sources of news themselves matter. We also discover asymmetric effects of news within markets. Finally, using a pooled GARCH model we find that macroeconomic shocks have the strongest impact on financial markets in Hungary, while political news has the largest influence in both Hungary and Poland.
Keywords: Financial markets, Czech Republic, Hungary, Poland, political news, macroeconomic shocks, European Monetary Union
JEL Classification: G12, G15, F30
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