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Housing loans and domestic credit in the Baltic States and Poland: Structural breaks and macroeconomic determinants

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Hegerty S. W.

Journal of Economics and Management

2020

vol. 42

48-69

Aim/purpose – This study examines the time-series properties of home loans and do-mestic credit in Poland and the three Baltic countries, first in the univariate sense by identifying structural breaks in the series, and then using a multivariate model to identify the key drivers of loan growth.Design/methodology/approach – Structural break tests are conducted using the method of Bai & Perron (1998), while orthgonalised VARs are used for the macroeconomic model.Findings – The Estonian and Lithuanian home lending growth series have structural breaks in 2007, preceding the onset of the 2008 Global Financial Crisis. Estonian home lending has two additional structural breaks in 2009 and 2013. Neither of the two Polish lending series has any break after the sample begins in 2009, indicating more stability in the country’s markets. In the macroeconomic model, consumer price inflation and real effective exchange-rate appreciations have the largest influence on lending and credit growth, and Poland more affected than the Baltic countries.Research implications/limitations – This study opens the door to future research be-hind the specific causes of structural breaks in these series. While there is some evidence of an ‘early warning’ before the 2008 crisis, longer data series are needed for Poland and especially in the case of Latvia.Originality/value/contribution – This study offers insight into the lending markets in an area of the world that was significantly impacted by the 2008 crisis. Understanding the behaviour and causes of lending growth will help avoid future problems.

Exchange market pressure, stock prices, and commodity prices east of the Euro

100%

Hegerty S. W.

Journal of Economics and Management

2018

vol. 31

74-94

Aim/purpose – This paper aims to examine connections between the exchange, equity, commodity and commodity markets of a set of Central and Eastern European (CEE) economies using monthly time-series data. In particular, we examine whether stock – or commodity – price changes might put pressure on these currencies to depreciate, and whether these pressures are transmitted within the region or from larger neighbors. Design/methodology/approach – This paper creates monthly indices of Ex-change Market Pressure (EMP) from 1998 to 2017 using a combination of currency depreciation, reserve losses, and changes in interest-rate differentials for the Czech Republic, Hungary, Poland, and Ukraine, Bulgaria, and Romania. After examining these indices for evidence of currency ‘crises’, and their components for evidence of changes in currency policy, Vector Autoregressive (VAR) methods such as Granger causality and impulse-response functions are used to examine connections between EMP, domestic and foreign stock returns, and changes in commodity prices in the first four countries listed. Findings – While EMP increased in 2008, and the degree of central banks’ currency- -market interventions decreased afterward, this paper uncovers key differences among countries. In particular, the Czech Republic is relatively insulated from international transmissions, while Hungary is more susceptible to global spillovers and Poland is exposed to events originating elsewhere in the CEE region. Ukraine shows bidirectional causality between its EMP and stock indices, and finds that pressure on the hryvnia increases if commodity or oil prices decline. Research implications/limitations – This study adds to the relatively limited literature regarding this region, and highlights particular vulnerabilities for both individual countries and specific neighbors; further research is necessary to uncover the channels of transmission using economic modeling. Originality/value/contribution – This study explicitly models two major economic processes in a part of the world that is relatively rarely examined. These include events in Central and Eastern European exchange markets and central bank intervention, and also interlinkages among regional currency and equity markets, foreign equity markets, and global commodity prices. This will allow policymakers to assess integration between these countries, the rest of the European Union, and the global economy.

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2 Journal of Economics and Management

2 Hegerty S. W.

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1 2018

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Housing loans and domestic credit in the Baltic States and Poland: Structural breaks and macroeconomic determinants

Exchange market pressure, stock prices, and commodity prices east of the Euro