CEU Electronic Theses and Dissertations, 2010
| Author | Burger, Anna Sára |
|---|---|
| Title | HOW SHOULD WE MEASURE THE IMPACT OF CHANGES IN GLOBAL FINANCIAL SENTIMENT ON THE HUNGARIAN MACROECONOMY? |
| Summary | This thesis paper attempts to disentangle the interconnections between the global financial sentiment, the Hungarian interest rate and the Hungarian business cycles. We build two Structual VAR models: the first one is based on Uribe and Yue (2005), and uses the US Treasury bill rate as a measure of global financial sentiment. The second one is our own model, and uses the Volatility Index of the S&P 500 as a measure of global financial sentiment. While the overall fit of the first model does not meet our expectations, the second model provides an appropriate identification scheme for quantifying the impact of changes in investors’ risk appetite on the Hungarian interest rate and domestic economy. The variance decomposition of our own model points out that about 25% of the variation in the Hungarian interest rate is explained by innovations in the Volatility index of the S&P500, which implies that the interest rate responds systematically to changes in the global financial sentiment. At the same time, a much larger part (45%) of the fluctuations in the Hungarian interest rate is explained by domestic macroeconomic fundamentals. As for the decomposition of the Hungarian GDP and investment shocks, we find that shocks in the Volatility index of the S&P500 account for about 10-15% of aggregate fluctuations in Hungary. Volatility index shocks and Hungarian interest rate shocks are together responsible for about 45% of movements in investments. |
| Supervisor | Kondor, Peter |
| Department | Economics MA |
| Full text | https://www.etd.ceu.edu/2010/burger_anna.pdf |
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