|
on Transition Economics |
| By: | Genevieve Boyreau-Debray; Shang-Jin Wei |
| Abstract: | State-owned financial institutions have been proposed as a way to address market failure, but the recent literature has also highlighted their pathological problems. This paper studies the case of China for pitfalls of a state-dominated financial system, including possible segmentation of the internal capital market due to local government interference and mis-allocation of capital. Even without formal legal prohibition to capital movement across regions, we find that capital mobility within China is low. Furthermore, to the extent some capital moves around the country, the government (as opposed to the private sector) tends to allocate capital systematically away from more productive regions toward less productive ones. In this context, a smaller role of the government in the financial sector might increase economic efficiency and the rate of economic growth. |
| JEL: | G1 F3 |
| Date: | 2005–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11214&r=tra |
| By: | Dawn Holland; Olga Pomerantz |
| Abstract: | This paper explores the link between foreign direct investment and trade in a panel of four countries that will accede to the European Union in 2004: Poland, Hungary, the Czech Republic and Slovenia. We augment standard demand-side export and import equations with a measure of FDI penetration. We compare results based on a panel mean-group estimator with a fixed-effects panel model that allows variation across slope parameters where necessary. We find that FDI penetration has a broadly neutral impact on the trade balance. However, the trade intensity of foreign firms differs significantly across countries. |
| Date: | 2004–01 |
| URL: | http://d.repec.org/n?u=RePEc:nsr:niesrd:226&r=tra |
| By: | Simon Commander; Fabian Bornhorst |
| Abstract: | This paper looks at the well-being of children in transition economies in the light of greater economic integration. The different stages of integration of the transition economies into the world economy are marked by substantial variations in trade and capital flows. International labour mobility remains limited, and unemployment has been high since the beginning of transition. Because employment is the main determinant of household income, this has had a negative effect on the well-being of children. At the national level, a high degree of variation in regional unemployment rates has emerged which is symptomatic of the lack of integration of labour markets. High regional unemployment rates are further associated with increases in non-participation, while adjustments via wages and migration have been largely absent, or insufficient. Indicators of child well-being – such as infant mortality rates – are positively correlated with unemployment rates, suggesting that public service provision is, in general, not sufficient to offset the negative effect of unemployment on child well-being. A closer look at unemployment benefit schemes reveals not only large differences between countries but also scope for broader coverage and better targeting of programmes in order to reduce the risk of families falling into poverty when parents become unemployed. |
| Keywords: | Child Welfare; Transition;; Central Europe; CIS; Eastern Europe; |
| JEL: | E24 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ucf:inwopa:inwopa05/30&r=tra |
| By: | Tomáš Holub |
| Abstract: | This paper discusses the role of foreign exchange interventions in the inflation-targeting regime, focusing on the Czech experience since 1998. It proposes criteria for assessing whether the interventions are consistent with the inflation targeting. While the CNB’s interventions in mid- 1998 and in 2002 pass these criteria easily, the judgement might be more uncertain concerning the interventions in early-1998 and in 1999/2000. It is also stressed that the literature on managed floating usually ignores the difficulty in defining clear procedural rules for the interventions. This contrasts with the procedures guiding the interest rate decisions under the inflation targeting regime, which may occasionally create tensions in the policy regime, as demonstrated by the Czech experience, too. The interventions’ effectiveness in the Czech Republic is also discussed. It seems that sometimes they might have had an immediate impact lasting up to 2 or 3 months, but no strategy can be identified that would work in all episodes. Moreover, even many of the “successful” interventions were not able to prevent quite prolonged periods of exchange rate overvaluation in 1998 and in 2002. It is concluded that the signalling role of foreign exchange interventions is more important than their “market-equilibrating effect”, implying a rather unstable transmission between the central bank actions and the market reactions. Finally, the paper analyses the sterilisation costs, which are shown to have been quite substantial in the Czech Republic. It is argued that the financial sustainability of the interventions is quite important for their credibility and effectiveness. |
| Keywords: | Exchange rate, foreign exchange interventions, inflation targeting, sterilisation. |
| JEL: | E42 E44 E52 E58 E65 F31 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:1/2004&r=tra |
| By: | David Navrátil; Viktor Kotlán |
| Abstract: | This paper asks to what extent the market prices in the future monetary policy decisions of the Czech National Bank (CNB), how this policy predictability has evolved over time, and whether the change in the central bank’s forecasting methodology in mid-2002 had any impact. Using a sample up to mid-2004, the results are threefold. First, three-quarters of the CNB’s decisions were in line with medium-term money market expectations. Notwithstanding this relatively high predictability of CNB policy, the average mistake in the expectations was biased upwards: over the entire IT period the market has priced in a higher repo rate than has actually turned out to be the case. Second, our analysis shows that the period in which forecasts with an active monetary policy (unconditional forecasts) have been used is characterized by smaller “surprises” of the money market. On the one hand, this may be connected with a change in the CNB’s communication of the forecast, including releases of verbal comments on the interest rate trajectory that is consistent with the outlook. On the other hand, it may reflect a different economic environment in the second stage of IT in the Czech Republic. Third, we analyze whether there is convergence or divergence between the central bank’s forecast-consistent interest rate trajectory and market forward rates. We show that in most cases market rates converged toward the CNB’s interest rate trajectory after the publication of the forecast. |
| Keywords: | Financial market reaction, inflation targeting, monetary policy predictability, term structure of interest rates. |
| JEL: | E43 E44 E52 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:1/2005&r=tra |
| By: | Martin Čihák |
| Abstract: | The note is a review of the literature on the quantitative methods used to assess the vulnerabilities of financial systems to risks. In particular, the author focuses on the role of system-wide stress testing. He summarizes the recent developments in the literature, highlighting topics relevant for the Czech case. He presents the key concepts relating to systemwide stress tests, overviews the stress tests performed by central banks and international financial institutions, and discusses conceptual issues relating to modeling of individual risk factors. |
| Keywords: | Financial soundness, macroprudential analysis, stress tests. |
| JEL: | G21 G28 E44 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:2/2004&r=tra |
| By: | Martin Čihák |
| Abstract: | The note discusses key issues involved in designing a suitable set of stress tests for the Czech banking system. The aim of the note is to propose stress tests that could be used by the Czech National Bank on a regular basis to assess the soundness of domestic banks, both for purposes of macroprudential surveillance and for banking supervision. The author suggests that the exercise be broadly based on the stress tests conducted during the 2001 IMF-World Bank Financial Sector Assessment Program (FSAP) mission to the Czech Republic. He summarizes the FSAP stress tests, and proposes a number of extensions and modifications. The key recommendations are presented in a table that covers also data requirements and a suggested timeframe for implementation. The note includes results of a replication of the Czech FSAP stress tests for mid-2003 data. |
| Keywords: | Banking system, stress tests. |
| JEL: | G21 G28 E44 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:3/2004&r=tra |
| By: | Aleš Bulíř |
| Abstract: | The paper presents the rationale for spreadsheet-based debt sustainability assessments. Policymakers can use these exercises in two ways. First, assessments of possible debt developments provide “reality checks” of macroeconomic projections. Second, the financial stability exercise may indicate vulnerability to crises. Empirically, using the IMF debt sustainability template, the paper finds that the external position of the Czech Republic appears sustainable under most plausible history-based scenarios. However, a deep, two-year recession coupled with fiscal indiscipline might double the 2002 stock of foreign debt by the end of the decade. The fiscal position is significantly more fragile and the fiscal debt-to-GDP ratio quickly approaches 60 percent under some of the more pronounced shocks. |
| Keywords: | Debt sustainability, Macroeconomic projections, Vulnerability. |
| JEL: | F34 H63 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:rpnrpn:4/2004&r=tra |
| By: | Aleš Bulíř; Kateřina Šmídková |
| Abstract: | Estimation and simulation of sustainable real exchange rates in some of the new EU accession countries point to potential difficulties in sustaining the ERM2 regime if entered too soon and with weak policies. According to the estimates, the Czech, Hungarian, and Polish currencies were overvalued in 2003. Simulations, conditional on large-model macroeconomic projections, suggest that under current policies those currencies would be unlikely to stay within the ERM2 stability corridor during 2004-2010. In-sample simulations for Greece, Portugal, and Spain indicate both a much smaller misalignment of national currencies prior to ERM2, and a more stable path of real exchange rates over the medium term than can be expected for the new accession countries. |
| Keywords: | ERM2, Foreign direct investment, Sustainable real exchange rates. |
| JEL: | F31 F33 F36 F47 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:10/2004&r=tra |
| By: | Alexis Derviz; Jiří Podpiera |
| Abstract: | In this paper we investigate the determinants of the movements in the long-term Standard & Poors and CAMELS bank ratings in the Czech Republic during the period when the three biggest banks, representing approximately 60% of the Czech banking sector’s total assets, were privatized (i.e., the time span 1998–2001). The same list of explanatory variables corresponding to the CAMELS rating inputs employed by the Czech National Bank’s banking sector regulators was examined for both ratings in order to select significant predictors among them. We employed an ordered response logit model to analyze the monthly long-run S&P rating and a panel data framework for the analysis of the quarterly CAMELS rating. The predictors for which we found significant explanatory power are: Capital Adequacy, Credit Spread, the ratio of Total Loans to Total Assets, and the Total Asset Value at Risk. Models based on these predictors exhibited a predictive accuracy of 70%. Additionally, we found that the verified variables satisfactorily predict the S&P rating one month ahead. |
| Keywords: | Bank rating, CAMELS, ordered logit model, panel data analysis. |
| JEL: | C53 E58 G21 G33 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:1/2004&r=tra |
| By: | Ian Babetskii |
| Abstract: | There are two opposite points of view on the link between economic integration and business cycle synchronization. De Grauwe (1997) classifies these competing views as “The European Commission View” and “The Krugman View”. According to the European Commission (1990), closer integration leads to less frequent asymmetric shocks and to more synchronized business cycles between countries. On the other hand, for Krugman (1993) closer integration implies higher specialization and, thus, higher risks of idiosyncratic shocks. Drawing on the evidence from a group of transition countries which have experienced a notable increase in trade openness and economic integration with the European Union during the past decade, this paper tries to determine whose argument is supported by the data. This is done by confronting estimated time-varying coefficients of supply and demand shock asymmetry with indicators of trade intensity and exchange rates. We find that (i) an increase in trade intensity leads to higher symmetry of demand shocks; the effect of integration on supply shock asymmetry varies from country to country; (ii) a decrease in exchange rate volatility has a positive effect on demand shock convergence. The results for demand shocks can be interpreted in favor of “The European Commission View”, also known as the endogeneity argument by Frankel and Rose (1998) in the OCA criteria discussion, according to which trade links reduce asymmetries between countries. Overall, our results support Kenen’s (2001) argument that the impact of trade integration on shock asymmetry depends on the type of shock. |
| Keywords: | EU enlargement, business cycle, trade, OCA (optimal currency area) |
| JEL: | E32 F30 F42 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2/2004&r=tra |
| By: | Anca Pruteanu |
| Abstract: | With this work, we aim to enrich the knowledge about the monetary policy transmission mechanism in the Czech Republic with empirical evidence on the impact of monetary policy on bank lending. Using a panel of quarterly time series for Czech commercial banks for the period 1996–2001, we study the overall effect of monetary policy changes on the growth rate of loans and the characteristics of the supply of loans. The characterization of the credit market’s supply side allows us to make inferences on the operativeness of the credit channel (the bank lending channel and the broad credit channel) of the monetary transmission mechanism. We find that changes in monetary policy alter the growth rate of loans with considerably stronger magnitude in the period 1999–2001 than in the period 1996–1998. From the analysis intended to capture the characteristics of the supply of loans, we conclude that the lending channel was operative in the period 1996–1998: we find cross-sectional differences in the lending reactions to monetary policy shocks due to degree of capitalization and liquidity. For the subsequent period 1999– 2001, the results also show distributive effects of monetary policy due to bank size and a bank’s proportion of classified loans. In the context of steadily decreasing interest rates, this bolsters the supposition of credit rationing and hence that of an operative broad credit channel. At the same time, we find evidence of linear relationships between bank characteristics and the growth rate of loans, and again these relationships change between the two time periods. This bodes well with the changes in the structure and attitude towards lending of the Czech commercial banks. |
| Keywords: | Bank lending channel, broad credit channel, credit rationing, monetary transmission mechanism. |
| JEL: | E52 E51 E58 G21 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:3/2004&r=tra |
| By: | Jiří Podpiera |
| Abstract: | In this paper we propose an alternative method for deriving the business cycle. We interpret the varying inflationary responses to a constant demand shock in a partial equilibrium model. An above-average inflationary response indicates a boom phase and a below-average response shows an economic slowdown. Our model uses data for prices and household budget shares which are not subject to revisions and are consistent with the inflation measure. Hence, it mitigates the common drawbacks of usually applied techniques, such as real-time data mismeasurement or end-point bias of univariate filters. It follows that the results are altered neither by GDP data revisions, labor share determination and NAIRU estimation and total productivity smoothing, nor by the end-point bias of data filtering. The proposed method is thus preferred to other complementary methods such as GDP series filtering or the production function approach in showing truly the inflation environment. It is applied to the Czech quarterly data during 1994- 2003 and compared to other available business cycle estimates for the Czech economy. Comparing our business cycle estimation method with the production function method, used by the Economic Intelligence Unit and the Czech Ministry of Finance, and the Kalman filter, used by the Czech National Bank, we found the highest correlation between our measure and the Economic Intelligence Unit’s indicator. |
| Keywords: | Business cycle, inflation environment, simultaneous model. |
| JEL: | E31 E32 E37 C30 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:4/2004&r=tra |
| By: | Petr Král |
| Abstract: | The main goal of the paper is to obtain quantitative evidence describing determinants of FDI in the case of the Czech economy in order to empirically support the decision-making process within the Czech National Bank. The paper builds on the recent economic literature and at the same time examines FDI inflows from the perspective of a multinational company. Furthermore, the microeconomic and macroeconomic characteristics of a potential host country which are crucial for multinational companies’ investment decisions are examined. Since government investment incentives seem to play a role in attracting foreign direct investors the paper provides some details on the Czech economic environment regarding this issue. To reach those objectives a cointegration analysis and error-correction model is used to identify the most important determinants of FDI inflows in the Czech Republic by developing an econometric model for analytic purposes. The empirical results presented in the paper support the hypothesis that the most significant determinants of FDI inflow into the Czech economy correspond to the theoretically considered and empirically tested factors. The paper, therefore, provides some basis for analysing the character of foreign investment and assessing the role of the government in attracting FDI inflows to the Czech Republic. More specifically, the empirical results suggest that establishing and maintaining macroeconomic stability and external equilibrium, offering a consistent and competitive package of investment incentives and promotion, and an efficient financing infrastructure, public governance regime and social system are the key factors promoting foreign direct investment inflows. |
| Keywords: | Determinants, empirical analysis, foreign direct investment, incentives |
| JEL: | F21 F23 C22 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:5/2004&r=tra |
| By: | Narcisa Kadlčáková; Joerg Keplinger |
| Abstract: | This project undertakes an empirical analysis in credit risk modeling using a data sample representative of bank lending to the Czech corporate sector. A rating system is constructed using a proprietary database (Creditreform) that provides a solvency index for a large number of Czech firms. Several methods for the calibration and validation of a rating system are described and tested in practice. On the basis of a representative portfolio for Czech industries, systemic predictions of regulatory and economic capital are obtained and compared. The methodologies formulated by the latest Consultative Document of the NBCA (April 2003) and by the Credit Metrics and CreditRisk+ models are applied. The main contributions of this project can be briefly summarized as follows: (a) it shows in an applied manner that input data problems in credit risk modeling can be overcome, (b) it sheds light on regulatory issues that are gaining increasing relevance, and (c) it outlines the most important features of two credit risk models. |
| Keywords: | Credit Risk, Economic Capital, Exchange Rate Exposure, Rating System. |
| JEL: | G21 G28 G23 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:6/2004&r=tra |
| By: | Vladislav Flek; Kamil Galuščák; Jaromír Gottvald; Jaromír Hurník; Štěpán Jurajda; David Navrátil; Petr Mareš; Daniel Münich; Tomáš Sirovátka; Jiří Večerník |
| Abstract: | In this volume we investigate the macroeconomic aspects of labour market behaviour and its microfoundations. In the first part we deal with aggregate labour market trends and issues relevant to macroeconomic policy. The second part analyses in more detail labour flexibility, namely labour market flows, long-term unemployment and labour force deprivation. The third part addresses wage flexibility and relative wages, with special attention paid to regional unemployment elasticity of wages and returns to education. Worsening labour market performance can be seen especially in a rising NAIRU, declining labour mobility, labour deprivation due to long-term unemployment, skill mismatch and emerging signs of inflexibility in wage structures. Our conclusions are of use for both macroeconomic and labour market policies, signalling, among other messages, limitations on potential output growth stemming from deteriorated labour market performance and a need for institutional and structural changes rather than counter-cyclical policies to solve the unemployment problem in the Czech Republic. |
| Keywords: | Employment, labour flows, labour force marginalisation, NAIRU, returns to education, unemployment, wage curve, wage differentials, wage inflation. |
| JEL: | E24 J21 J30 J31 J44 J61 J62 J63 J64 J65 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:7/2004&r=tra |
| By: | Martin Cincibuch; Jiri Podpiera |
| Abstract: | Using the simple arbitrage model, we decompose real appreciation in tradables in three Central European countries between the pricing-to-market component (disparity) and the local relative price component (substitution ratio). Appreciation is only partially explained by local relative prices. The rest is absorbed by disparity, depending on the size of the no-arbitrage band. The observed disparity fluctuates in a wider band for differentiated products than for a commodity like goods. |
| Keywords: | Purchasing power parity, pricing-to-market, transition, real appreciation, exchange rates |
| JEL: | F12 F15 |
| Date: | 2004–12 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:9/2004&r=tra |