Measuring Financial Market Perception of Economic and Monetary Union Enlargement
|Author:||Mgr. Ing. Martina Horníková, Ph.D. (25.5.2011)|
|Leaders:|| doc. Mgr. Tomáš Holub Ph.D.
|Work type:|| Dissertations
|Awards and prizes:|
|Abstract:||This thesis deals with assessing how financial markets perceive prospects of future euro area enlargement. Market views on such an enlargement are measured using two different approaches. The first approach, the static probability calculators method (SPC), is based on an existing method that was previously used for the old EU Member States. In order to overcome inherent shortcomings of this method, a second, completely new methodology with an indicator that is based on short-term dynamics of forward spreads was developed, further referred to as dynamic probability calculators (DPC). Both the SPC and DPC are applied to data from four Central Eastern European countries: the Czech Republic, Hungary, Poland, and Slovakia. In addition, data of other European countries were used to assess the robustness of the two approaches.
The new methodology is conceptually based on the notion of ambiguity-averse agents. Specifically, it attempts to apply the framework of incomplete preferences, developing a general equilibrium framework, which allows for multiple equilibria supported by one set of fundamentals. This equilibrium indeterminacy offers a way to reconcile short-term fluctuations of market prices with a relatively stable underlying economic environment and expectations.
The thesis concludes with a comparison of the results of the two methods with financial market opinion surveys. Their similarity with national euro adoption strategies as well as compatibility with the obtained estimations provides an understanding of a degree of transparency and communication effectiveness by national authorities with the public.