Capital Flows and Speculative Attacks in Prospective EU Member States

28 Pages Posted: 6 Sep 2004

See all articles by Heather D. Gibson

Heather D. Gibson

Bank of Greece; Athens University of Economics and Business

Euclid Tsakalotos

Athens University of Economics and Business

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Abstract

This paper examines the capital flow experience of transition economies which are also prospective EU members with a view to shedding light on the likely problems they might encounter with exchange rate policy in the run up to euro area membership. We show that they have been experiencing fairly sizeable capital flows since the early 1990s. We explain these flows using two separate models. The first explains the level of capital flows using panel data from the prospective EU members. The second concentrates specifically on estimating the probability of a country experiencing downward speculative pressure. In both cases, the contribution of domestic factors and contagion is explored. The results suggest that, while domestic factors have some role to play, it is rather limited. Moreover, there is clear evidence of contagion effects, suggesting that macroeconomic policy in the prospective EU members will be complicated by capital flows in the run up to euro area membership.

Suggested Citation

Gibson, Heather D. and Tsakalotos, Euclid, Capital Flows and Speculative Attacks in Prospective EU Member States. Available at SSRN: https://ssrn.com/abstract=584079

Heather D. Gibson (Contact Author)

Bank of Greece ( email )

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Athens University of Economics and Business

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Euclid Tsakalotos

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

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