Was the postcrisis growth slowdown in Central, Eastern and Southeastern Europe (CESEE) structural... more Was the postcrisis growth slowdown in Central, Eastern and Southeastern Europe (CESEE) structural or cyclical? We use three different methods-production function approach, basic multivariate filter, and multivariate filter with financial frictions-to evaluate potential growth and output gaps for 18 CESEE countries during 2000-15. Our findings suggest that potential growth weakened significantly after the crisis across most countries in the region. This decline appears to be largely due to stagnant productivity and weaker capital accumulation, which were associated with common external factors, including trading partners' slow potential growth, but also decline in global trade and stalled expansion of global value chains. Our estimates suggest that output gaps in 2015 were largely closed in many countries in the region.
The efficiency of macroeconomic policies depends on adequate business cycle approximation. The CN... more The efficiency of macroeconomic policies depends on adequate business cycle approximation. The CNB's approach is aimed at estimating the deviation of real GDP from its "inflation-non-accelerating" level. Such deviation-the output gap-reflects demanddriven inflationary pressures, where the Phillips curve is of primary importance. By contrast, the production function method reflects the supply-side or "capacity" view of the economy's potential. The two approaches are subject to methodological disputes and deliver different quantitative results, thus leaving decision makers still with a considerable degree of uncertainty. That is why alternative approaches are being developed. The following articles illustrate this problem in more detail. Vladislav Flek, Adviser to the Bank Board ALSO IN THIS ISSUE
Http Dx Doi Org 10 1080 13504850600705984, Mar 25, 2008
ABSTRACT We empirically analyse currency fluctuations in four central European states (CE-4) agai... more ABSTRACT We empirically analyse currency fluctuations in four central European states (CE-4) against the USD and Euro, employing daily data over 1 January 1994 to 10 October 2005 and constructing a dynamic correlation coefficient based on the estimates of a bivariate generalized autoregressive conditional heteroscedasticity model. We find evidence of convergence in exchange rate volatilities between CE-4 currencies and the Euro. In other words, from the US market's point of view, currencies of the CE-4 region and the Euro tend to behave quite similarly. This degree of synchronicity is in line with the composition of currency baskets and the share of the Euro as a trade-invoicing currency in the CE-4 economies.
Page 1. WORKING PAPER SERIES 2 8 0 0 2 Jiří Podpiera: Policy Rate Decisions and Unbiased Paramete... more Page 1. WORKING PAPER SERIES 2 8 0 0 2 Jiří Podpiera: Policy Rate Decisions and Unbiased Parameter Estimation in Conventionally Estimated Monetary Policy Rules Page 2. WORKING PAPER SERIES Policy Rate Decisions ...
In this paper we propose a new approach to the assessment of excessive risk-taking by a banking s... more In this paper we propose a new approach to the assessment of excessive risk-taking by a banking sector. We use the portfolio approach to assess the optimal risk-return combination of a bank's portfolio, based on data for 32 categories of loans. It provides a benchmark for the optimality of the bank's portfolio. We apply this method on an exhaustive sample of Czech banks for the period January 2005-February 2008. We observe an average excess of risk-taking of 33% of the optimal risk and a slight reduction of this excess risk over the analyzed period.
ABSTRACT Professional forecasters in the Czech Republic made large average absolute and relative ... more ABSTRACT Professional forecasters in the Czech Republic made large average absolute and relative errors in inflation forecasts between 1998 and 2007. However, these errors were, in a majority of institutions, exclusively due to inaccurate forecast of exchange rate development. Although forecasters learned from their past forecast errors, the exchange rate forecast errors persisted. Nevertheless, some of the forecasting institutions, such as the Czech central bank, exhibited a bias in their inflation forecasts even after accounting for the errors in exchange rate forecasts.
... Among the most frequently applied is the Hodrick-Prescott filter (HP), first described in Hod... more ... Among the most frequently applied is the Hodrick-Prescott filter (HP), first described in Hodrick and Prescott ... The bias in the evaluation of the output gap based on real-time data and ... in business cycle identification using multivariate approaches lies in the lower reliability of the ...
Názory a stanoviska vyslovená v práci jsou názory autorÛ a ne nutnû âeské národní banky. 1 Ilustr... more Názory a stanoviska vyslovená v práci jsou názory autorÛ a ne nutnû âeské národní banky. 1 Ilustrativní porovnání se zemûmi EU a eurozóny vychází z materiálu "EU bank's income structure" (ECB, April 2000) a slouÏí ke komparacím ve v˘voji rentability. Zdrojem dat o ãeském bankovním sektoru a úrokov˘ch sazbách vãetnû grafÛ jsou databáze âeské národní banky. V ana-l˘ze je pouÏito pojmu "banka" (velká banka, zahraniãní banka a poboãka, malá banka, stavební spofiitelna, specializovaná banka) pro subjekty zapsané v obchodním rejstfiíku se sídlem v âeské republice a s licencí âNB pÛsobit na ãeském bankovním trhu.
The banking sector is a dominant component of the financial system in the Czech Republic. The sta... more The banking sector is a dominant component of the financial system in the Czech Republic. The stability of the banking system is of key importance as regards the financial stability of the economy as a whole. Any turbulence in the banking system can, moreover, generate a need for additional fiscal expenses in this area. For these reasons it is important to analyse banking sector developments in more detail and to attempt to enhance the early warning system toolkit – bank ratings, in order to prevent bank failures more effectively. This article sets out to describe a potentially usable concept of cost efficiency for more objective measurement of banks' management quality and demonstrates that this indicator is a good indicator of bank failure.
In this paper we propose an extension to New International Macroeconomic framework by introducing... more In this paper we propose an extension to New International Macroeconomic framework by introducing the vertical investment margin. The dynamic properties of the extended model are discussed in relation to relevant existing models with particular emphasis on the impact of productivity convergence and effects of timing of trade and financial liberalization on the convergence patterns. We compare the mechanisms behind the three investment margins (horizontal investment to new varieties, vertical investment to quality, and investment to export-eligibility) for the long-run equilibrium. Based on such comparison, the proposed extension proves crucial for consistent explanation of long-term trends in macroeconomic aggregates and the real exchange rate development observed in European transition countries. JEL Classification: F12, F36, F41.
In this paper we develop a two-country dynamic general equilibrium model by means of which we see... more In this paper we develop a two-country dynamic general equilibrium model by means of which we seek to explain the long-run paths of a converging emerging market economy. The model’s novel feature is the inclusion of quality investment to the standard framework of applied general equilibrium two-country models. This extension proves crucial ingredient for explanation of the trend in real exchange rate. Using a case study calibration of productivity and deep parameters for the Czech economy we demonstrate the ability of the model to consistently explain dynamics in key macroeconomic variables that are essential inputs for commonly used ‘gap models’ in monetary policy practice.
While it is generally consented that management quality is often the key determinant of banks'... more While it is generally consented that management quality is often the key determinant of banks' success in a risky world, somewhat paradoxically early warning systems are mainly built on financial ratios driving management quality assessment to the periphery. In this paper we show, using estimated cost efficiency scores for the Czech banking sector, that cost inefficient management was a predictor of bank failures during the years of banking sector consolidation, and thus suggest the inclusion of cost efficiency in early warning systems.
In this paper we study the endogenous response of unequally developed regions to a drop in invest... more In this paper we study the endogenous response of unequally developed regions to a drop in investment and trade costs in a general equilibrium model. The response is characterized by a rise in foreign direct investment in the underdeveloped region and increased consumption in the developed one, leading to trade imbalances between the regions. We hereby propose that declining investment
In this paper we show the relevance of the degree of competition for inferences about changes in ... more In this paper we show the relevance of the degree of competition for inferences about changes in export-production relative prices when the nominal exchange rate changes. We devise a model for tradable goods that combines the market competition and the pricing-tomarket literature and we empirically document the contrast between perfectly and imperfectly competitive markets for the export-production relative price responses to exchange rate changes. When the macroeconomic view is taken, a change in the degree of competition in exports (a change in the average mark-up on exported products) alternates the reaction in relative prices and quantity exported and thus requires careful policy-related consideration.
By quantifying the determining factors of Czech trade during 1993-2002, this paper enriches the e... more By quantifying the determining factors of Czech trade during 1993-2002, this paper enriches the empirical trade literature with evidence from an economy that has undergone intensive structural changes. Our findings lend significance to standard macroeconomic variables such as aggregate demand and the real exchange rate. Apart from these, however, liberalisation of tariffs, the evolution of unit prices of exports and imports, and economies of scale also played a significant role. An out-of-sample forecast for the trade balance was carried out for 2003-2004.
The synchronized disinflation across Europe since end-2011 raises the question of whether non-eur... more The synchronized disinflation across Europe since end-2011 raises the question of whether non-euro area EU countries are affected by the undershooting of the euro area inflation target. To shed light on this issue, we estimate an open-economy, New Keynsian Phillips curve, in which we control for imported inflation. Regression results suggest that falling food and energy prices have been the main disinflationary driver. But low core inflation in the euro area has also had a clear and significant impact. Countries with more rigid exchangerate regimes and higher share of foreign value added in domestic demand have been more affected. The scope for monetary response to low inflation in non-euro area EU countries depends on concerns about financial stability and unanchoring of inflationary expectations, as well as on exchange rate regime and capital flows dynamics.
Was the postcrisis growth slowdown in Central, Eastern and Southeastern Europe (CESEE) structural... more Was the postcrisis growth slowdown in Central, Eastern and Southeastern Europe (CESEE) structural or cyclical? We use three different methods-production function approach, basic multivariate filter, and multivariate filter with financial frictions-to evaluate potential growth and output gaps for 18 CESEE countries during 2000-15. Our findings suggest that potential growth weakened significantly after the crisis across most countries in the region. This decline appears to be largely due to stagnant productivity and weaker capital accumulation, which were associated with common external factors, including trading partners' slow potential growth, but also decline in global trade and stalled expansion of global value chains. Our estimates suggest that output gaps in 2015 were largely closed in many countries in the region.
The efficiency of macroeconomic policies depends on adequate business cycle approximation. The CN... more The efficiency of macroeconomic policies depends on adequate business cycle approximation. The CNB's approach is aimed at estimating the deviation of real GDP from its "inflation-non-accelerating" level. Such deviation-the output gap-reflects demanddriven inflationary pressures, where the Phillips curve is of primary importance. By contrast, the production function method reflects the supply-side or "capacity" view of the economy's potential. The two approaches are subject to methodological disputes and deliver different quantitative results, thus leaving decision makers still with a considerable degree of uncertainty. That is why alternative approaches are being developed. The following articles illustrate this problem in more detail. Vladislav Flek, Adviser to the Bank Board ALSO IN THIS ISSUE
Http Dx Doi Org 10 1080 13504850600705984, Mar 25, 2008
ABSTRACT We empirically analyse currency fluctuations in four central European states (CE-4) agai... more ABSTRACT We empirically analyse currency fluctuations in four central European states (CE-4) against the USD and Euro, employing daily data over 1 January 1994 to 10 October 2005 and constructing a dynamic correlation coefficient based on the estimates of a bivariate generalized autoregressive conditional heteroscedasticity model. We find evidence of convergence in exchange rate volatilities between CE-4 currencies and the Euro. In other words, from the US market's point of view, currencies of the CE-4 region and the Euro tend to behave quite similarly. This degree of synchronicity is in line with the composition of currency baskets and the share of the Euro as a trade-invoicing currency in the CE-4 economies.
Page 1. WORKING PAPER SERIES 2 8 0 0 2 Jiří Podpiera: Policy Rate Decisions and Unbiased Paramete... more Page 1. WORKING PAPER SERIES 2 8 0 0 2 Jiří Podpiera: Policy Rate Decisions and Unbiased Parameter Estimation in Conventionally Estimated Monetary Policy Rules Page 2. WORKING PAPER SERIES Policy Rate Decisions ...
In this paper we propose a new approach to the assessment of excessive risk-taking by a banking s... more In this paper we propose a new approach to the assessment of excessive risk-taking by a banking sector. We use the portfolio approach to assess the optimal risk-return combination of a bank's portfolio, based on data for 32 categories of loans. It provides a benchmark for the optimality of the bank's portfolio. We apply this method on an exhaustive sample of Czech banks for the period January 2005-February 2008. We observe an average excess of risk-taking of 33% of the optimal risk and a slight reduction of this excess risk over the analyzed period.
ABSTRACT Professional forecasters in the Czech Republic made large average absolute and relative ... more ABSTRACT Professional forecasters in the Czech Republic made large average absolute and relative errors in inflation forecasts between 1998 and 2007. However, these errors were, in a majority of institutions, exclusively due to inaccurate forecast of exchange rate development. Although forecasters learned from their past forecast errors, the exchange rate forecast errors persisted. Nevertheless, some of the forecasting institutions, such as the Czech central bank, exhibited a bias in their inflation forecasts even after accounting for the errors in exchange rate forecasts.
... Among the most frequently applied is the Hodrick-Prescott filter (HP), first described in Hod... more ... Among the most frequently applied is the Hodrick-Prescott filter (HP), first described in Hodrick and Prescott ... The bias in the evaluation of the output gap based on real-time data and ... in business cycle identification using multivariate approaches lies in the lower reliability of the ...
Názory a stanoviska vyslovená v práci jsou názory autorÛ a ne nutnû âeské národní banky. 1 Ilustr... more Názory a stanoviska vyslovená v práci jsou názory autorÛ a ne nutnû âeské národní banky. 1 Ilustrativní porovnání se zemûmi EU a eurozóny vychází z materiálu "EU bank's income structure" (ECB, April 2000) a slouÏí ke komparacím ve v˘voji rentability. Zdrojem dat o ãeském bankovním sektoru a úrokov˘ch sazbách vãetnû grafÛ jsou databáze âeské národní banky. V ana-l˘ze je pouÏito pojmu "banka" (velká banka, zahraniãní banka a poboãka, malá banka, stavební spofiitelna, specializovaná banka) pro subjekty zapsané v obchodním rejstfiíku se sídlem v âeské republice a s licencí âNB pÛsobit na ãeském bankovním trhu.
The banking sector is a dominant component of the financial system in the Czech Republic. The sta... more The banking sector is a dominant component of the financial system in the Czech Republic. The stability of the banking system is of key importance as regards the financial stability of the economy as a whole. Any turbulence in the banking system can, moreover, generate a need for additional fiscal expenses in this area. For these reasons it is important to analyse banking sector developments in more detail and to attempt to enhance the early warning system toolkit – bank ratings, in order to prevent bank failures more effectively. This article sets out to describe a potentially usable concept of cost efficiency for more objective measurement of banks' management quality and demonstrates that this indicator is a good indicator of bank failure.
In this paper we propose an extension to New International Macroeconomic framework by introducing... more In this paper we propose an extension to New International Macroeconomic framework by introducing the vertical investment margin. The dynamic properties of the extended model are discussed in relation to relevant existing models with particular emphasis on the impact of productivity convergence and effects of timing of trade and financial liberalization on the convergence patterns. We compare the mechanisms behind the three investment margins (horizontal investment to new varieties, vertical investment to quality, and investment to export-eligibility) for the long-run equilibrium. Based on such comparison, the proposed extension proves crucial for consistent explanation of long-term trends in macroeconomic aggregates and the real exchange rate development observed in European transition countries. JEL Classification: F12, F36, F41.
In this paper we develop a two-country dynamic general equilibrium model by means of which we see... more In this paper we develop a two-country dynamic general equilibrium model by means of which we seek to explain the long-run paths of a converging emerging market economy. The model’s novel feature is the inclusion of quality investment to the standard framework of applied general equilibrium two-country models. This extension proves crucial ingredient for explanation of the trend in real exchange rate. Using a case study calibration of productivity and deep parameters for the Czech economy we demonstrate the ability of the model to consistently explain dynamics in key macroeconomic variables that are essential inputs for commonly used ‘gap models’ in monetary policy practice.
While it is generally consented that management quality is often the key determinant of banks'... more While it is generally consented that management quality is often the key determinant of banks' success in a risky world, somewhat paradoxically early warning systems are mainly built on financial ratios driving management quality assessment to the periphery. In this paper we show, using estimated cost efficiency scores for the Czech banking sector, that cost inefficient management was a predictor of bank failures during the years of banking sector consolidation, and thus suggest the inclusion of cost efficiency in early warning systems.
In this paper we study the endogenous response of unequally developed regions to a drop in invest... more In this paper we study the endogenous response of unequally developed regions to a drop in investment and trade costs in a general equilibrium model. The response is characterized by a rise in foreign direct investment in the underdeveloped region and increased consumption in the developed one, leading to trade imbalances between the regions. We hereby propose that declining investment
In this paper we show the relevance of the degree of competition for inferences about changes in ... more In this paper we show the relevance of the degree of competition for inferences about changes in export-production relative prices when the nominal exchange rate changes. We devise a model for tradable goods that combines the market competition and the pricing-tomarket literature and we empirically document the contrast between perfectly and imperfectly competitive markets for the export-production relative price responses to exchange rate changes. When the macroeconomic view is taken, a change in the degree of competition in exports (a change in the average mark-up on exported products) alternates the reaction in relative prices and quantity exported and thus requires careful policy-related consideration.
By quantifying the determining factors of Czech trade during 1993-2002, this paper enriches the e... more By quantifying the determining factors of Czech trade during 1993-2002, this paper enriches the empirical trade literature with evidence from an economy that has undergone intensive structural changes. Our findings lend significance to standard macroeconomic variables such as aggregate demand and the real exchange rate. Apart from these, however, liberalisation of tariffs, the evolution of unit prices of exports and imports, and economies of scale also played a significant role. An out-of-sample forecast for the trade balance was carried out for 2003-2004.
The synchronized disinflation across Europe since end-2011 raises the question of whether non-eur... more The synchronized disinflation across Europe since end-2011 raises the question of whether non-euro area EU countries are affected by the undershooting of the euro area inflation target. To shed light on this issue, we estimate an open-economy, New Keynsian Phillips curve, in which we control for imported inflation. Regression results suggest that falling food and energy prices have been the main disinflationary driver. But low core inflation in the euro area has also had a clear and significant impact. Countries with more rigid exchangerate regimes and higher share of foreign value added in domestic demand have been more affected. The scope for monetary response to low inflation in non-euro area EU countries depends on concerns about financial stability and unanchoring of inflationary expectations, as well as on exchange rate regime and capital flows dynamics.
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