Net International Investment Position As Early Warning Indica-tor: Does It Differ For European Union Ceecs And Non-Ceecs?

Abstract :

The Macroeconomic Imbalance Procedure (MIP) applied by the European Commission aims to identify, prevent and address the emergence of potentially harmful macroeconomic imbalances that could adversely affect economic stability in the EU. Fourteen scoreboard MIP indicators have been defined. In our previous papers we were able to show that 1) net international investment position (NIIP) is one of the few MIP variables able to predict economic and financial crises and 2) only two of five NIIP components possess systematic predictive capacity of crises: derivatives and other investment. The aim of the paper is to check whether the NIIP components, which have the most predictive strength of crises, differ between two group of EU countries: Central and Eastern European Countries (CEECs) and non-CEECs. All components of NIIP (direct investment, portfolio investment, financial derivatives, other investments, reserve assets) at the end of the year will be applied as regressors. Our model is an ordered probit model. We show that different components of NIIP are able to predict crises in Central and Eastern European Countries (CEECs) and non-CEECs. Only two NIIP components show relatively systematic predictive capacity of crises in CEECs: portfolio investments and other investments, while for non-CEECs there are no systematically proven variables.